Opposing Economic Forces in Policy Implementation
A government decides to fund a new national infrastructure project, expected to significantly boost labor productivity, by increasing corporate taxes. Explain the two opposing effects this policy package will have on the price-setting curve and, consequently, on the equilibrium real wage.
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Opposing Economic Forces in Policy Implementation
A government policy that funds new public infrastructure projects (which increase worker productivity) by raising corporate taxes will unambiguously lead to higher real wages because the productivity gains will always outweigh the negative impact of the tax on firms' costs.