If the supply of labor is perfectly inelastic, then the incidence of a payroll tax levied entirely on employers will be:

Question

Quizplus · Accepted Answer

When the supply of labor is perfectly inelastic, the burden of payroll tax falls entirely on the workers in the form of lower wages. This is because employers cannot pass on the tax burden to workers in the form of higher prices without affecting demand for their products, so they are left with no choice but to reduce wages. Therefore, the entire tax incidence is on the workers.

If the Supply of Labor Is Perfectly Inelastic, Then the Incidence