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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Advocates of taxing consumption rather than income argue that

a. a consumption tax is a better automatic stabilizer.

b. taxing consumption does not cause any dead-weight losses.

c. the rich consume a higher fraction of income than the poor.

d. the current tax code discourages people from saving.

To determine

The argument in agreement to taxing consumption.

Explanation

Option (d):

Tax code discourages saving by taxing the return to saving , by double taxation of capital income, taxing bequests, having means tests for welfare and Medicaid and by granting financial aid as a function of wealth. Thus, option‘d’ is correct.

Option (a):

Automatic stabilizers offset fluctuations in economic activity without direct intervention by policymakers and the consumption tax does not fall in this category. Thus, option ‘a’ is incorrect...

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