1 Homework Attempts | 2.7 Keep the Highest 2.7 / 4 4. Redistributive philosophies and incentives Consider a society consisting of two people. Carlos earns an income of $110,000 per year, and Deborah earns an income of $35,000 per year. The government is considering a redistribution plan that would impose a 15% tax on Carlos's income and give the revenue to Deborah. Without any incentive distortion, Carlos would retain $93,500 and Deborah would end up with $51,500. However, let us assume that since Carlos will not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 15% x $90,000 = $13,500 will be owed in taxes. With the redistribution plan, Carlos will take home an income of $ The $13,500 that Carlos pays in taxes will be transferred by the government to Deborah. Let us assume that since Deborah now receives payment from the government, she will not work as many hours and will earn an income from work of only $30,000 instead of her initial $35,000. With the redistribution plan, Deborah's total income (including the government payment received) is now $ Without a redistribution plan, total income in this society is $ . After the redistribution plan is implemented, total income in this society is . Therefore, the redistribution plan total income in this society According to the maximin criterion, the government implement this redistribution plan. Why? The government is not entitled to take money away from one person and give it to another The plan benefits Deborah, who is the least well-off member of society. Total societal utility will increase if the plan is enacted Grade It Now Save & Continue Continue without saving * CO - 0) O