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Moreover, C must be indifferent to A, but this can happen if C is preferred to A. As a conclusion, indifference curves cannot cross.
So, if the employee consider that the tax refund is permanent (i.e. will not be adjusted upwards at some point in the future) he will consider he has a greater disposable current income (represented by an outward shift in the budget constraint from ω to ω’). In the other case, the employee will use the tax refund for savings (a shift from ω to ...
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