Lump-sum taxes
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Explain why lump-sum taxes will not cause any losses in efficiency. Are lump-sum taxes feasible? Lump-sum taxes do not result in substitution effects, but they do affect prices. Is this a contradiction?
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This explanation provides you a comprehensive argument relating to lump-sum taxes
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Lump-sum taxes
Explain why lump-sum taxes will not cause any losses in efficiency. Are lump-sum taxes feasible? Lump-sum taxes do not result in substitution effects, but they do affect prices. Is this a contradiction?
Lump sum taxes will not cause any loss in efficiency because the tax will remain the same irrespective of the level of income. From the perspective of the tax payer the lump-sum tax is a fixed amount no matter the change in the person's income. This is a regressive tax, because the lower the person's income the higher percent of income is ...
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