The supply of financial capital is very internationally mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. The supply of labor is less internationally mobile. People have strong ties to the countries in which they live. Assuming that the demand for labor and for financial capital have similar elasticities, which of the following is TRUE?
A) Taxes on financial capital will raise more revenue than similar taxes on labor.
B) Taxes on labor will have less deadweight loss than similar taxes on financial capital.
C) Taxes on labor and financial capital are interchangeable.
D) Taxes on labor will have no deadweight loss at all.
Correct Answer:
Verified
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A)
Figure: Taxes
Figure: Taxes
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