Suppose people can consume the income they earn or save and invest it at rate r ?. A. If we tax wealth at a rate greater than r ?, how are people likely to adjust their rate of savings? B. Use the Solow model to comment on how a wealth tax will likely affect the growth rate of the capital stock. How will this policy affect the growth rate of output per worker? How will this policy affect the wage rate for workers? C. To what extent is this wealth tax likely to reduce the influence of the wealthy in politics? D. In the Peterson Institute discussion, Greg Mankiw argues that accumulating wealth creates a pecuniary externality. What does Mankiw mean? How would you expect a wealth subsidy to affect the real wage for workers?
Answers to all 4 parts
Suppose people can consume the income they earn or save and invest it at rate r ?.
A. If we tax wealth at a rate greater than r ?, how are people likely to adjust their rate of
savings?
B. Use the Solow model to comment on how a wealth tax will likely affect the growth rate of
the capital stock. How will this policy affect the growth rate of output per worker? How will
this policy affect the wage rate for workers?
C. To what extent is this wealth tax likely to reduce the influence of the wealthy in politics?
D. In the Peterson Institute discussion, Greg Mankiw argues that accumulating wealth creates a
pecuniary externality. What does Mankiw mean? How would you expect a wealth subsidy to
affect the real wage for workers?
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