Tax economists often speak of lump-sum taxes, which are levied on individuals without regard to their economic activity lump-sum taxes are efficient because they impose zero marginal tax rates on all inputs and outputs. Assume that the government imposes a lump-sum tax of $200 on each individual. Show the effect of this on the supply and demand for labor in a graph. Does the marginal revenue product of labor still equal the wage in equilibrium?
In a lifetime framework, the dynamic equivalent of a lump-sum tax is an "endowment tax," which would tax individuals on the basis of their potential labor incomes. Would you favor such a change?
Describe some of the difficulties in implementing an endowment tax.