Question: Suppose that the government imposes a proportional income tax on
Suppose that the government imposes a proportional income tax on the representative consumer's wage income. That is, the consumer's wage income is w(1 – t)(h – l) where t is the tax rate. What effect does the income tax have on consumption and labor supply? Explain your results in terms of income and substitution effects.
Answer to relevant QuestionsSuppose, as in the federal income tax code for the United States, that the representative consumer faces a wage income tax with a standard deduction. That is, the representative consumer pays no tax on wage income for the ...Suppose that a consumer cannot vary hours of work as he or she chooses. In particular, he or she must choose between working q hours and not working at all, where q > 7 0. Suppose that dividend income is zero, and that the ...Supposing that a single consumer works for a firm, the quantity of labor input for the firm, N, is identical to the quantity of hours worked by the consumer, h – l. Graph the relationship between output produced, Y on the ...In the simplified model with proportional taxation there can be two equilibria, one with a high tax rate and one with a low tax rate. Now, suppose that government spending increases. Determine the effects of an increase in G ...Suppose that all social programs simultaneously become more generous. In particular suppose that there is an increase in UI benefits, and also an increase in welfare benefits, which are represented in the DMP model as ...
Post your question