Question: Festwalia has two types of workers low skill workers who earn
Festwalia has two types of workers: low-skill workers, who earn $10 per hour, and high-skill workers, who earn $20 per hour. The government of Festwalia currently imposes a 20% proportional tax on all labor earnings. It is considering replacing this tax with a new, regressive tax. The new tax system will raise the same total revenue as the original system, but it will do so by taxing the low-skill workers at a rate above 20% and exempting the high-skill workers from paying any tax at all. Will this new, regressive tax system be more or less efficient than the old, proportional tax system?
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