When different consumers pay different amounts of taxes, Ricardian equivalence may fail because
A) alternative ways of collecting the same tax revenue can have different welfare effects.
B) consumers can become jealous of one another.
C) such differences in taxes create credit market imperfections.
D) higher taxes on more talented people may be politically popular.
E) such differences in taxes create welfare losses to the business community.

Question

Quizplus · Accepted Answer

Ricardian equivalence assumes that all consumers face the same tax burden and have the same preferences regarding government spending. However, when different consumers pay different amounts of taxes, alternative ways of collecting the same tax revenue can have different welfare effects. This implies that individuals' consumption and savings decisions may be influenced differently by changes in government policies, and Ricardian equivalence may not hold.

When Different Consumers Pay Different Amounts of Taxes, Ricardian Equivalence