Why the government may still prefer

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Q. The federal government occasionally goes through the process of reauthorizing and modifying the State Children's Health Insurance Program (SCHIP, which was introduced in 1997). Money for this program could be raised by increasing taxes generally (imagine adding a small percent to all income tax) or - as suggested by some past proposals - by taxing cigarettes. Explain what the lump-sum principle would suggest about which way would allow the money to be raised with the smallest loss in overall utility. Then make an argument for why the government may still prefer using the other approach.

Reference no: EM138342

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