The mechanism by which taxes and subsidies generally hurt an - TopicsExpress

The mechanism by which taxes and subsidies generally hurt an economy is rather simple. Commerce only occurs if a price can be found less than the benefit to the buyer and greater than the cost to the seller. That is, only if the benefit overall is greater than the cost overall. Taxes add an artificial cost, causing people not to trade when it is beneficial to do so, and subsidies add an artificial benefit, causing people to trade when it is harmful to do so. Both cause a lessening of overall wealth.

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