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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish the senator's goal? Explain.

To determine
The impact of payroll tax on workers and firms.

Explanation

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. When a payroll tax is imposed on the firms in the economy, it will increase the tax amount paid by the firms; using this to reduce the payroll tax paid by the workers will not make them better off.

The payroll taxes paid by the firms are increased, and the additional revenue thus generated is used in order to reduce the payroll tax paid by the workers would fail...

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