Consider an economy in which individuals choose between work time and leisure time. They spend all of their wages from work hours on consumption goods. Suppose that the government introduces an ad valorem tax of 45 percent imposed on all consumption goods and on leisure time. In the case of consumption, the tax applies to the expenditure amount. In the case of leisure time, the tax applies to the value of leisure time assessed at the individual's hourly wage from labour. What income tax rate is equivalent to this tax on consumption and leisure? [NOTE: If necessary, please round your answer to the nearest percent. Enter the whole number corresponding to the percentage rate. Do not enter the percent sign. For example, if your answer is 12 percent, you should enter 12 in the answer space, not 0.12.]

Consider an economy in which individuals choose between work time and leisure time. They spend all of their wages from work hours on consumption goods. Suppose that the government introduces an ad valorem tax of 45 percent imposed on all consumption goods and on leisure time. In the case of consumption, the tax applies to the expenditure amount. In the case of leisure time, the tax applies to the value of leisure time assessed at the individual's hourly wage from labour. What income tax rate is equivalent to this tax on consumption and leisure? [NOTE: If necessary, please round your answer to the nearest percent. Enter the whole number corresponding to the percentage rate. Do not enter the percent sign. For example, if your answer is 12 percent, you should enter 12 in the answer space, not 0.12.]

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Design Of The Tax System

Section: Chapter Questions

Problem 2PA

See similar textbooks

Similar questions

Say that the government is considering a ban on smoking in restaurants in Tobaccoville. There are 1 million people living there, and each would benefit by 200 from this smoking ban. However, there are two large tobacco companies in Tobaccoville and the ban would cost them $5 million each. What are the proposed policys total costs and benefits? Do you think it will pass?
Suppose you are a typical person in the U.S. economy. You pay 4 percent of yourincome in a state income tax and 15.3 percent of your labor earnings in federal payrolltaxes (employer and employee shares combined). You also pay federal income taxes asin Table 2. How much tax of each type do you pay if you earn $30,000 a year? Taking alltaxes into account, what are your average and marginal tax rates? What happens toyour tax bill and to your average and marginal tax rates if your income rises to$60,000?
Thelma's current income is $100,000 and she currently pays $30,000 in income tax.w Any income she earns above $100,000 is taxed at 40 percent. Which following correctly calculates her tax burden? the her average tax rate is 30 percent her marginal tax rate is 40 percent her average tax rate is 40 percent her marginal tax rate is 30 percent.
Song earns $148,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $29,600 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent. Required: What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $111,000 in taxable income? What is the term that describes this type of reaction to a tax rate increase? What types of taxpayers are likely to respond in this manner?
The U.S. income tax is currently O progressive O proportional O regressive O proactive a tax.
Steve Forbes ran for U.S. president in 1996 and 2000 on a platform proposing a 17% flat tax, that is, an income tax that would simply be 17% of each tax payer's taxable income. Suppose that Alice was single in the year 2016 with a taxable income of $29,000. If the 17% flat tax proposed by Mr. Forbes had been in effect in 2016, what would Alice's tax have been?
The negative income tax has been proposed as a means The negative income tax has been proposed as a means of increasing both the efficiency and the equity of Canada’s tax system (see Applying Economic Concepts 18-1 on page 465). The most basic NIT can be described by two variables: the guaranteed annual income and the marginal tax rate. Suppose the guaranteed annual income is $8000 and the marginal tax rate on every dollar earned is 35 percent. With this NIT, after-tax income is given by After-tax income = 8000 + (1 – 0.35) X (Earned income) a. On a scale diagram with after-tax income on the vertical axis and earned income on the horizontal axis, draw the NIT relationship between earned income and after-tax income. b. What is the level of income at which taxes paid on earned income exactly equal the guaranteed annual income? c. The average tax rate is equal to total net taxes paid divided by earned income. Provide an algebraic expression for the average tax…
4.7) Consider a national income tax that is structured as follows: Income Marginal tax rate $0-$10,000 0% $10,001-- $60,000 5% $60,001and above 0% For each of the following workers determine his or her marginal and average tax rate d. Would you describe the tax system as proportional, regressive, or progressive? Explain
4.7) Consider a national income tax that is structured as follows: Income Marginal tax rate $0-$10,000 0% $10,001-- $60,000 5% $60,001and above 0% For each of the following workers determine his or her marginal and average tax rate. a. A part-time worker with an annual income of $9,000. b. A retail sales person with an annual income of $45,000. c. An advertising executive with an annual income of $600,000
Consider a labor market in which workers are paid the minimum wage. When will it matter for tax incidence whether a payroll tax is imposed on workers or on employers? A.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are not legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. B.Normally, the statutory imposition of a tax is relevant to the actual economic incidence because the party on whom legal…
Suppose the wage is 80 per hour and that the consumer has 100 hours H to work with. Suppose that the MRS is given by c/(l−10) . What will the consumer’s choices of c and l be. Repeat with an upper bound of 10 hours. Repeat both parts with a 10% tax rate for all income levels. Suppose that the tax rate has two brackets so that income from hours above (1/5)H is taxed at 20 percent. How does the solution change? Suppose that consumers must instead pay a lump sum tax that raises the same tax revenues as the one listed above. How will outcomes change?
Suppose there is a bill to increase the tax on cigarettes by $1 per pack coupled with an income tax cut of $500. Suppose a person smokes an average of 500 packs of cigarettes per year—and would thus face a tax increase of about $500 per year from the cigarette tax at the person’s current level of consumption. The income tax measure would increase the person’s after-tax income by $500. Would the combined measures be likely to have any effect on the person’s consumption of cigarettes? Why or why not?