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As we learned in class, firms and workers typically share the burden of payroll taxes depending on the elasticity of labor demand and supply.
a. Draw a graph depicting the impact of a payroll tax on employer on wage and employment. Indicate on the graph, the wage before payroll tax, the take-home wage and labor cost after payroll tax.
b. Draw a graph depicting the extreme case where workers bear all the payroll tax even though the government tax on the employers. Indicate on the graph, the areas of producer surplus, worker’s surplus and the payroll taxes.
c. According to empirical evidence, who would more likely to carry the heavier burden of the payroll taxes?
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