Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 28, Problem 6CQ
To determine
Impact of income transfer on income.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Mark Zuckerberg of Facebook and Elon Musk of Space X have taken risks to build to their businesses and been successful at it. The fundamental premise for their success mostly hinges on the ownership of private property and free market forces. For billionaires like them who have made their wealth mostly based on their own effort and perseverance, would it be fair to impose high income tax on them to redistribute their wealth to help the poor?
How will The Tax Reform for Acceleration and Inclusion will lessen the worsen poverty and income inequality in the country?
Consider a society consisting of two people. Edison earns an income of $85,000 per year and Hilary earns an income of $25,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Edison's income and give the revenue to Hilary.
Without any incentive distortion, Edison would retain $63,750 and Hilary would end up with $46,250. However, let us assume that since Edison will not receive all the income he earns, he decides to work less and earn an income of only $75,000, of which 25%×$75,000=$18,75025%×$75,000=$18,750 will be owed in taxes.
With the redistribution plan, Edison will take home an income of_________.
.
The $18,750 that Edison pays in taxes will be transferred by the government to Hilary. Let us assume that since Hilary now receives payment from the government, she will not work as many hours and will earn an income from work of only $24,000 instead of her initial $25,000.
With the redistribution plan, Hilary's total…
Chapter 28 Solutions
Economics: Private and Public Choice (MindTap Course List)
Knowledge Booster
Similar questions
To combat income inequality and to generate increased tax revenues to fund expenditures, government officials decide to aggressively increase how progressive income taxes are, so much so that the top income earners are marginally taxed 90% of their income (and while this marginal tax rate may seem oppressive, these top income earners still have more than enough income to satisfy all of their needs and all but the most extravagant of wants - basically, these earners have more than enough money).
Argue why this tax policy is a fair approach to fund government expenditures.
Why might this tax policy fail to achieve its objectives (tax revenues would actually decline as a result)?
arrow_forward
Suppose that country B has a population of 5,000 households and a poverty line of $15,000. 4,000 households have expenditure levels of $10,000, below the poverty line of $15,000, while the remainder of households have expenditures above the poverty line. What is the poverty headcount ratio for this country?
arrow_forward
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc