Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter17: Taxation And Resource Allocation
Section: Chapter Questions
Problem 1DQ
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Question
who pays the corporate taxes the globel ecomany
Expert Solution
Step 1
When there is high tax rate in the economy then the firms respond by lowering the investments and lower wages or increased unemployment. Higher taxes acts as increased cost to the firms and in order to increase profits, the firms respond by lowring the wages of workers. So, according to the theory of corporate tax incidence, the burden of the corporate tax is beared by the workers in the form of low wages or consumers in the form of higher prices.
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