Suppose that the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40 percent with the lowest market income.

If the cost of administrating the redistribution scheme takes 50 percent of the taxes collected, what is the distribution of income after taxes and benefits?

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Households Lowest 20 percent Second 20 percent Third 20 percent Fourth 20 percent Highest 20 percent Market income (dollars) 5.0 9.0 20.0 30.0 36.0 Tax paid (dollars) 0.0 0.0 2.0 3.0 3.6 Benefits received (dollars) 2.2 2.2 0.0 0.0 0.0 Income after tax and benefits (dollars) 7.2 11.2 18.0 27.0 32.4 Income (percentage) 7.5 11.7 18.8 28.2 33.8