Question: pleas show the process, thank you! 2.(40 marks) Consider an economy in which the individuals differ only in their income-generating ability aj, i E {1,2,

 pleas show the process, thank you! 2.(40 marks) Consider an economy

pleas show the process, thank you!

2.(40 marks) Consider an economy in which the individuals differ only in their income-generating ability aj, i E {1,2, ...,5}. Suppose that the mean ability level, , is exactly the same as the median ability, am, i.e. = am; and that the pre-tax income of each individual i is yi = a;. Further suppose that all tax revenue is redistributed through a uniform lump-sum grant g that can only be used by each individual for some special consumption activity (that is, 5g equals the total tax revenue), and each individual is utility function is u(t, g) = 1 + (1 t)aj, where t is the proportional income tax rate. Find the equilibrium tax rate under the majority voting when am > 2.(40 marks) Consider an economy in which the individuals differ only in their income-generating ability aj, i E {1,2, ...,5}. Suppose that the mean ability level, , is exactly the same as the median ability, am, i.e. = am; and that the pre-tax income of each individual i is yi = a;. Further suppose that all tax revenue is redistributed through a uniform lump-sum grant g that can only be used by each individual for some special consumption activity (that is, 5g equals the total tax revenue), and each individual is utility function is u(t, g) = 1 + (1 t)aj, where t is the proportional income tax rate. Find the equilibrium tax rate under the majority voting when am >

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