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To help low income workers, government may give a policy like a cash grant combined with a labor income tax (e,g, $1000 cash grant combined
To help low income workers, government may give a policy like a cash grant combined with a labor income tax (e,g, $1000 cash grant combined with a 50% labor income tax). Assume leisure is a normal good, someone argues that people will always choose to have more leisure when given this kind of policy. Please comment on this argument and briefly explain using the knowledge of income effect and substitution effect.
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