When different consumers pay different amounts of taxes, Ricardian equivalence may fail because
A)alternative ways of collecting the same tax revenue can have different welfare effects.
B)consumers can become jealous of one another.
C)such differences in taxes create welfare losses to the business community.
D)such differences in taxes create credit market imperfections.
E)higher taxes on more talented people may be politically popular.

Question

Quizplus · Accepted Answer

Ricardian equivalence theory assumes that taxpayers have identical preferences and that taxes are equally distributed to all individuals. However, when different consumers pay different amounts of taxes, alternative ways of collecting the same tax revenue can have different welfare effects, leading to a failure of Ricardian equivalence.

When Different Consumers Pay Different Amounts of Taxes, Ricardian Equivalence