Assume that both the corporate and noncorporate sectors are in long-run equilibrium before the imposition of a corporate profits tax. In the short run, the imposition of a corporate profits tax will ________ profits in the noncorporate sector, but ________ profits in the corporate sector.

Question

Quizplus · Accepted Answer

In the short run, the imposition of a corporate profits tax will not change profits in the noncorporate sector because the tax directly affects only the corporate sector. However, it will decrease profits in the corporate sector because the tax reduces the after-tax income of corporations.

Assume That Both the Corporate and Noncorporate Sectors Are in Long-Run