A) Replacing tKW and tKC with a 22.5% tax on capital. B) Replacing tKC and tLC with a 20% tax on cheese. C) Replacing tKW and tLW with a 20% tax on wine. D) Replacing tLW and tLC with a 17.5% tax on labour. E) All of the above.
Suppose that a country has only two commodities, two factors of production, and no savings. The two commodities are wine (W) and cheese (C) and the two factors of production are capital (K) and labour (L). The country collects the following partial factor taxes:
tKC is a tax on capital used in the production of cheese equal to 20%.
tKW is a tax on capital used in the production of wine equal to 25%.
tLC is a tax on labour used in the production of cheese equal to 20%.
tLW is a tax on labour used in the production of wine equal to 15%.
Which of the following would have the same outcome as the above taxes?
A) Replacing tKW and tKC with a 22.5% tax on capital.
B) Replacing tKC and tLC with a 20% tax on cheese.
C) Replacing tKW and tLW with a 20% tax on wine.
D) Replacing tLW and tLC with a 17.5% tax on labour.
E) All of the above.
Please explain
Step by step
Solved in 2 steps
