3. An income tax. Suppose the U.S. Congress decides to levy an income tax on both wage income and capital income. Instead of receiving wL+rK =Y, consumers receive (1-7)wL+(1-7)rK = (1-7)Y. Trace the consequences of this tax for output per worker in the short and long runs, starting from steady state.

3. An income tax. Suppose the U.S. Congress decides to levy an income tax on both wage income and capital income. Instead of receiving wL+rK =Y, consumers receive (1-7)wL+(1-7)rK = (1-7)Y. Trace the consequences of this tax for output per worker in the short and long runs, starting from steady state.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 7PA

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