Neutral Taxes

Neutral Taxes

A tax structure that does not change the incentives in the market. Neutral taxes are rare; for example, a sales tax may encourage people to shop on the black market (to avoid paying the tax). Likewise, an income tax may encourage persons not to work, so as to reduce their income. An example of a neutral tax is a poll tax.
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This confusion continued with neoclassical economics: within the boundaries of an artificial economy, it is possible to design neutral taxes, i.