How to Calculate Tax Incidence

Taxes can be levied on buyers or sellers of any good or service. However, who actually pays a tax does not depend on who the tax is levied on. In economic theory, tax incidence – which refers to the distribution of a tax burden between buyers and sellers – only depends on […]

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The Efficiency Wage Theory

According to the Efficiency Wage Theory firms can operate more efficiently and become more productive if they pay wages above the equilibrium level. There are actually four different theories, according to which firms can benefit in four different ways from paying efficiency wages: higher employee effort, lower employee turnover, attracting higher quality employees, and more […]

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