Question

A new administration reforms a state's tax code. Corporate tax was increased by 3%, allowing the value-added tax on consumer goods to be reduced by 5%. This had no net effect on the state budget as the two tax changes balanced each other out. 5. What is a likely effect of this change in tax policy?
a. high-income people will choose to leave the state
b. nonprofits will become a larger part of the economy
c. consumers in the state will choose to buy fever things
d. financial institutions will be less likely to invest in the state's

Answer 1

economy

c. consumers in the state will choose to buy fewer things. Since the value-added tax on consumer goods has been reduced, it is likely that consumers will be more inclined to make purchases. However, the increase in corporate tax may cause businesses to raise prices, which could potentially deter some consumers. Overall, there may be a shift in consumer behavior, but there is no indication that high-income people will leave the state, nonprofits will become a larger part of the economy, or financial institutions will be less likely to invest in the state's economy.