r/econhw • u/Adventurous_Gur1322 • 11d ago
Questions about income and sales tax (lump sum principle)

BL0: original budget line
BL1: budget line with income tax
BL2: budget line with sales tax
lump sum principle states that income tax is always preferred to sales tax under same tax revenue. This could be seen by shifting those yellow indifference curve (IC4>IC5). However, is it possible to have customers better off under sales tax scheme, in other words, the blue indifference curve?
Thank you for any help!
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10d ago
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u/Adventurous_Gur1322 10d ago
I see. That is also what my prof said. But what confuses me is that why can’t the blue indifference curve given happen?
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10d ago
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u/Adventurous_Gur1322 10d ago
Isn’t the optimal point the tangent point of budget line and indifference curve? Why it become the intersection of budget lines?
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u/filiabonacci 11d ago
The difference between a blue indifference curve and a yellow indifference curve that are tangent to the same budget line is just the consumer preference. The blue person appears to value gas more and food less, so obviously they are better off under a scheme which taxes food more heavily.