What happens to net taxes when transfer payments increase Wh

What happens to net taxes when transfer payments increase? When both taxes and transfer payments increase?

Solution

Net taxes = Tax - Transfer Payments

When Transfer payments increase, Net taxes decreases ceteris paribus.

When both taxes and transfer payments increase, three scenarios are possible, explained as follows.

(i) Increase in Taxes = Increase in Transfer payments, therefore Increase/Decrease in Net taxes = 0. Net taxes will remain unchanged.

(ii) Increase in Taxes > Increase in Transfer payments, therefore Increase in Net taxes > 0. Net taxes will increase.

(iii) Increase in Taxes < Increase in Transfer payments, therefore Increase in Net taxes < 0. Net taxes will decrease.

What happens to net taxes when transfer payments increase? When both taxes and transfer payments increase?SolutionNet taxes = Tax - Transfer Payments When Trans

Get Help Now

Submit a Take Down Notice

Tutor
Tutor: Dr Jack
Most rated tutor on our site