Answered: Unemployment benefits are subject to…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter18: Public Economy

Section: Chapter Questions

Problem 19CTQ: Special interests do not oppose regulations in all cases. The Marketplace Fairness Act of 2013 would...

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Unemployment benefits are subject to income taxes. They are not (by default) subject to withholding, or to payroll taxes. Suppose that a particular worker is subject to a payroll tax of 7.65% of her wages; that she pays an average income tax rate of 10%; and that after losing her job, she is eligible to receive 60% of her previous weekly income. (Show Work)

(a) What fraction of her take-home paycheck will she receive from unemployment insurance?

(b) What effect does the tax treatment of unemployment insurance benefits have on the ability it provides its recipients for smoothing?

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