Tax Policy
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High Quality Content by WIKIPEDIA articles! Policymakers debate the nature of the tax structure they plan to implement (i.e., how progressive or regressive) and how they might affect individuals and businesses (i.e., tax incidence). The reason for such focus is economic efficiency as advisor to the Stuart King of England Richard Petty had noted that the government does not want to kill the goose that lays the golden egg. The paradigmatic efficient taxes are either those which are nondistortionary or lump sum. However, readers must be cautioned about the economist's definition of distortion onl...
High Quality Content by WIKIPEDIA articles! Policymakers debate the nature of the tax structure they plan to implement (i.e., how progressive or regressive) and how they might affect individuals and businesses (i.e., tax incidence). The reason for such focus is economic efficiency as advisor to the Stuart King of England Richard Petty had noted that the government does not want to kill the goose that lays the golden egg. The paradigmatic efficient taxes are either those which are nondistortionary or lump sum. However, readers must be cautioned about the economist's definition of distortion only considers the substitution effect because anything which does not change relative prices is defined as nondistortionary. One must also consider the income effect, which for tax policy purposes often needs to be assumed to cancel out in the aggregate. The efficiency loss is depicted on the demand curve and supply curve diagrams as the area inside Harberger's Triangle.
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