The country of Akerlovia currently has a tax system that gives each citizen $5,000 in cash up front, exempts the first $10,000 in earned income from tax, and taxes all earned income over $10,000 at a 25% rate. It is considering replacing this system with an EITC system. The proposed new system would drop the $5,000 cash give-away and would instead subsidize the first $10,000 in earned income at a 50% rate. All income earned over $10,000 would still be taxed at the same 25% rate, and the EITC benefits would never be phased out. Describe the effects of this policy change on the labor supply of workers with various incomes.
Answer to relevant QuestionsHow does making child care costs tax-deductible reduce the “tax wedge” associated with the fact that market work is taxed but home work is not? Does making child care costs deductible increase or decrease social ...Why does the EITC exacerbate the marriage penalty for low-in-come workers? Suggest an alternative method of calculating the EITC that reduces this penalty. The government of Maupintania introduces a new insurance program that pays for 100% of unexpected catastrophic medical costs. Before this time, only low-income households had this benefit. a. Describe an empirical test of ...In some cultures, when a member of the community who is ineligible for government provided social insurance faces some adverse condition, the rest of the community lends that member money until his or her condition improves. ...Senator Crawford, arguing in favor of capital gains tax cuts, says that reducing capital gains tax rates will stimulate entrepreneurial activity. Senator Long, arguing against these tax cuts, suggests that they will ...
Post your question