1. 20 marks : Kelly has an income of $50,000 and Olu has an income of...

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1. 20 marks : Kelly has an income of $50,000 and Olu has an income of $200,000. They both live in Ontario. Empirical evidence shows that higher-income earners save a higher proportion of their income than lower-income earners. Thus, suppose that Kelly saves 10% of his income and Olu saves 40% of his income. The consumption tax (HST) in Ontario is 13%. Every consumption is taxed; savings are not taxed if consumed later (a) Compute the proportion of income that Kelly and Olu each pay as consumption tax in only one period and use your answers to provide a rationale for why people below a certain income get an HST refund in Canada. (b) Suppose that income tax in a certain country is computed at a flat rate of 5%, but no tax is levied above $50,000 of taxable income. Taxable income, in turn, is computed as an individual's income minus $10,000. What are the marginal and average tax rates at each of the following income levels: $20,000, $45,000, and $120,000? Based on the average tax rate, is the tax structure progressive or regressive? Explain. 1. 20 marks : Kelly has an income of $50,000 and Olu has an income of $200,000. They both live in Ontario. Empirical evidence shows that higher-income earners save a higher proportion of their income than lower-income earners. Thus, suppose that Kelly saves 10% of his income and Olu saves 40% of his income. The consumption tax (HST) in Ontario is 13%. Every consumption is taxed; savings are not taxed if consumed later (a) Compute the proportion of income that Kelly and Olu each pay as consumption tax in only one period and use your answers to provide a rationale for why people below a certain income get an HST refund in Canada. (b) Suppose that income tax in a certain country is computed at a flat rate of 5%, but no tax is levied above $50,000 of taxable income. Taxable income, in turn, is computed as an individual's income minus $10,000. What are the marginal and average tax rates at each of the following income levels: $20,000, $45,000, and $120,000? Based on the average tax rate, is the tax structure progressive or regressive? Explain.

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Part a To compute the proportion of income that Kelly and Olu pay as consumption tax we first calcul... View the full answer