Your mayor wants voters in your town to approve a $24 million per year property tax break for Acme Manufacturing, in order to keep Acme from moving their operations out of state. Acme only produces output, and has a payroll, worth $6 million per year. In terms of income multiplier effects, under what circumstances might this tax break be a good idea?


If the income multiplier is greater than or equal to 4, then this tax break may be worth it. If Acme leaves,
incomes will fall initially by $6 million, but the multiplier effect on your town's economy will be much
larger. If the multiplier is 4 then the overall effect will be $24 million. Therefore, voters should be willing
to pay up to $24 million to keep Acme in town. If the income multiplier is less than 4, then the overall
effect on your town's economy will be less than $24 million, and the tax break is a bad idea .

Economics

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