Gruber and Krueger (1991)1 found that mandated increases in the costs of workers’ compensation benefits in the 1970s and 1980s led to substantial wage offsets for workers. Some of the wage reductions they found were even larger than the total cost to firms of providing the additional benefits. What does this suggest about the deadweight loss from the implicit “benefit tax” involved in imposing these mandatory benefits?
Answer to relevant QuestionsSchmeezle and Schmoozle are two advisors for the government of Feldspar. Schmeezle says that since the elasticity of demand for granite countertops is –3 and the elasticity of demand for sinks is –1.5, taxes should be ...Suppose that for every hour you work you can earn $10 before taxes. Furthermore, suppose that you can work up to 16 hours per day, 365 days per year. Draw your annual budget constraint reflecting the consumption-leisure ...Suppose that the government introduces an EITC such that for the first $8,000 in earnings, the government pays 50¢ per dollar on wages earned. For the next $3,000 of earnings, the credit is held constant at $4,000, and ...Suppose that the government increases its tax rate on interest earned. Afterward, savings increase. Which effect dominates, the income effect or the substitution effect? Explain. Generational accounting techniques (recall Chapter 4) suggest that future income tax rates will be higher than current tax rates. How should this information affect the savings rate? How should it affect the relative appeal ...
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