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Assume the price of consumption is $1 per unit and the tax on earnings is proportional (i.e.a flat tax). If the tax rate increases from
Assume the price of consumption is $1 per unit and the tax on earnings is proportional (i.e.a flat tax). If the tax rate increases from 20 percent to 40 percent , then the budget line shifts down by 20 percent . the slope of the budget line falls (in absolute value) from 8w to the endowment point falls by 20 percent nonlabor income drops to 40 percent
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