Exercise 22.3. Consider the model in Section 22.2 and assume that policies are decided by the middle
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Exercise 22.3. Consider the model in Section 22.2 and assume that policies are decided by the middle class. Show that the middle class might prefer positive taxation on themselves (with the proceeds redistributed to themselves as lump-sum transfers). Provide a precise intuition for why such taxation may make political-economic sense for middle-class entrepreneurs. Would the same result apply if the proceeds of taxation were redistributed as a lump-sum transfer to every individual in the society (including workers).
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