Suppose there is a payroll tax placed on firms.If labor supply is perfectly elastic,then
A) firms and workers will split the payroll tax 50-50.
B) workers will bear 75% of the tax burden.
C) workers will bear 100% of the tax burden.
D) firms will bear 100% of the tax burden.
E) firms will bear 75% of the tax burden.

Question

Quizplus · Accepted Answer

When labor supply is perfectly elastic, workers can easily move to other jobs if wages decrease. Therefore, firms cannot pass any of the tax burden onto workers, and firms will bear the entire tax burden.

Suppose There Is a Payroll Tax Placed on Firms