Say we increase tax rates on labour income and decrease tax rates on capital income. Four possible channels that will determine the net general equilibrium effect of this change on average hours worked are: (a] substitution effects, (b) income effects, (c) capital-deepening (more capital per worker), (d) demand and supply effects in the labour market. How can we tell what the net effect of the tax change via these four channels on average wages will be. O Substition effects are always larger than income effects, so we know average hours worked will decrease. The capital-deepening and labour market effects will be larger than the microeconomic income and substitution effects and so hours worked will increase. The decrease in after-tax wages from the income taxes will be balanced out by the increase in before-tax wages from the capital deepening, so average hours worked will remain unaffected. O We cannot logically know the answer and will simply have to rely on numerical estimates to measure the effects