Exploring Microeconomics
8th Edition
ISBN: 9781544339443
Author: Sexton, Robert L.
Publisher: Sage Publications, Inc., Corwin, Cq Press,
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Textbook Question
Chapter 9, Problem 1P
Why would means-tested transfer payments (such as food stamps, in which benefits are reduced as income rises) act like an income tax facing recipients?
Expert Solution & Answer
To determine
The reason behind means-transfer payment acting as an income tax facing recipients.
Explanation of Solution
For example, a thirty percent benefit reduction rate costs to a thirty percent income tax, except it is paid via receiving lower benefits. So when the benefits are reduced as income rises, it also reduces how much recipients keep of additional earnings like taxes.
Economics Concept Introduction
Concept Introduction:
In the case of income tax, as the income increases, the tax liability will also increase. And as the reason the means-transfer payment like food stamps act as an income tax facing recipients.
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- Using the discussion of pay-as-you-go social security programs. explain how to derive the result that when n>r, this type of program is welfare-improving for all generationsarrow_forwardExplain very briefly what you understand from income effect and substitutioneffects of change in income tax ratesarrow_forwardUnder current law, most Social Security recipients do not pay federal or state income taxes on their Social Security benefits. Suppose the government proposes to tax these benefits at the same rate as other types of income. What is the impact of the proposed tax on the optimal retirement age?arrow_forward
- This question concerns rent subsidies. Suppose that under a rent subsidy the government will pay some specified proportion of the total rental price. Using an indifference map for "housing" (e.g. rooms of standard quality) and "all other commodities" analyze whether this approach to enhancing domestic welfare is more or less effective than granting income tax reductions equal in dollar amount to the amount of the rent subsidy? How do these compare to a lump sum $250 per month subsidy which must be applied toward rent or it is taken away?arrow_forwardProvide the two benefits to the U.S. government of granting income tax credits.arrow_forwardWhich of the following is a reason to deviate from the Haig-Simons comprehensive income definition because of correcting externalities? a- Imperfect information b- Charitable giving c- Consumer sovereignty d- Medical expensesarrow_forward
- Which of the following can be classified as transfer payment? a.Zakat b.Scholarships c.Unemployment compensation d.All of the answers given are correct.arrow_forwardThe calculation used by social security to calculate retirement benefits is meant to replace ______________ preretirement income for low-income retirees than high-income retirees.arrow_forwardMany economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income. Suppose the government uses the following equation to compute a family’s tax liability: Taxes Owed = (1/4 of Income)−$6,000 For each of the incomes listed in the following table, determine the tax liability for a family with that income level. (Note: If a family receives a subsidy because its income is too low, be sure to indicate the tax liability as negative.) Income Tax Liability (Dollars per year) (Dollars per year) 0 12,000 24,000 60,000 True or False: Any family with an annual income more than…arrow_forward
- Use the information above to help answer these last two questions Would this transfer increase, decrease, or have no effect on income inequality in this group? Redistributing income from the highest earner to the lowest one would reduce the utility of the top earner and increase the utility of the lowest earner. But what would happen to overall utility in the economy? Would it increase, decrease, or remain the same? Explain your answer. (Hint: does the marginal utility of income diminish as one earns more?)arrow_forwardOnly typed answer Unlike traditional social welfare programs, the Earned Income Tax Credit has been shown to increase: a. both equity and efficiency. b. equity but not efficiency. c. efficiency but not equity. d. neither equity nor efficiency.arrow_forward
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DATA GEMS: How to Access Income Data Tables and Reports From the CPS ASEC; Author: U.S. Census Bureau;https://www.youtube.com/watch?v=BWpVC-Clczw;License: Standard Youtube License