Suppose that the tax rate is set by politicians computiting for office in a democracy in which all citizens vote. Find the (Nash) equilibrium t and y.

Consider a society divided in two groups , the rich (r) and the poor (p) with respective utility function ur and up such that:

ur =y(1−t)−1/2y^2

up(t,y) = ty

where y is income generated (at cost) by the rich and t is the tax rate. Most members of the society are poor.

Answer rating: 100% (QA)

If we take the voting population to be N with the rich forming a min... View the full answer