A new administration reforms a state's tax code.

Question

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.
Use the passage to answer the question.
What is a likely effect of this change in tax policy?
(1 point)
High-income people will choose to leave the
O
state.
Nonprofits will become a larger part of the
economy.
Consumers in the state will choose to buy fewer
O
things.
Financial institutions will be less likely to invest
O
in the state's companies.

Answer 1

The most likely effect of this change in tax policy is that consumers in the state will choose to buy fewer things.

This is because the reduction in the value-added tax (VAT) on consumer goods could lead to lower prices for those goods, which may help offset the increased corporate tax. However, businesses might pass the additional tax burden on to consumers in some form, potentially leading to higher prices for some goods in the long run. Thus, consumers might decide to reduce their consumption in response to overall economic conditions or uncertainty stemming from the tax changes.

Therefore, among the options provided, the statement "Consumers in the state will choose to buy fewer things" is a likely effect of the tax policy change.