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 trade-off under the following income tax schemes.
a. a flat income tax of 20% on all income earned
b. an income tax where you pay no tax on the first $10,000 earned and a tax of 25% on all income over $10,000
c. an income tax where you pay 10% on the first $5,000 earned, 20% on the next $10,000 earned, and 30% thereafter

  • CreatedApril 25, 2015
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