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You are given the following information on a proposed “restaurant meals tax” in the Republic of Olympus. Olympus collects no other specific excise taxes, and all other government revenues come from a neutral lump-sum tax. (A lump-sum tax is a tax of a fixed sum paid by all people regardless of their circumstances.) Assume further that the burden of the tax is fully borne by consumers.
Now consider the following data:
Estimate the size of the excess burden of the tax. What is the excess burden as a percentage of revenues collected from the tax?
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