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  • 8/10/2019 Public Income Tax Answers.doc

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    PUBLIC ECONOMICS

    SEMINAR 3 - SUGGESTED ANSWERS

    Problem 1 Tax schedule

    (a) Draw a a! "#$e%&le (a! 'o) *ra+$#all, Ca ,o& %e', a,+ro*re"".e/re*re"".e +ar"0

    A We #a %e', +ro*re"".,/re*re""., b, loo2* a $e re*o"aro&% $e 22" o' $e a! +a,me "#$e%&le (a" a 'o o' #ome)Remember $a $e "lo+e o' $e a! +a,me "#$e%&le " $e mar*ala! rae A #$a*e $e a! rae %ee" w$e$er $e ","em "+ro*re"".e ($e mar*al a! rae " #rea"*)/re*re"".e ($emar*al a! rae " %e#rea"*)

    (b) Ca $e $eor, o' o+mal labo&r #ome a!ao e!+la +ar"4 or all4o' $e a! "#$e%&le $e U50

    A A $e boom o' $e "#$e%&le (z6 7) $e mar*al #ome a! " 8eroT$e +ar 947:9-1974777 al"o #o'orm" ;&e well o-e*a.e mar*a! rae"4 mar* a! rae" le"" $a 177

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    wa,0

    A B$* " re'erre% o a" $e #a"e w$e %.%&al" o' %ereable" ear $e "ame #ome I ma, $a++e a $e lower abl, le.el("ee Le#&re :4 T$eorem 93) b& o a $e $*$ abl, le.el (T$eorem917) T$ere'ore " e!+e#e% o #$a*e $e o+mal a! "#$e%&le a$e lowe" #ome le.el I%ee% a##or%* o T$eorem 9 $e mar*al

    a! rae a $e lowe" #ome (77771) " o lo*er 8ero b& +o".e

    (b)W$a " #$ara#er"# abo& $e "o#al wel'are 'o $a " be*&"e%0

    A I " a 'o o' %.%&al" &le" ol,4 o $*" l2e "a, #ome%"rb&o4 le.el o' aoal #ome4 or le.el o' em+lo,me T$e ol,wa, w$#$ $e laer maer " %re#l, $ro&*$ %.%&al" utilitiesW$e we ma!m"e a Ber*"o-Sam&el"o wel'are 'o we %o o#are abo& $o"e $*" +er "e4 ol, o w$a e!e $e, ae# &le"

    (c) Oe re"&l " o-%"oro a $e o+ W$a %oe" mea0 W$, "eem" o o be "a"e% $e &mer#al #om+&ao"0

    A I mea" $a $e mar*al #ome a! a $e $*$e" #ome le.el "8ero I &mer#al #om+&ao" $e a""&me% %"rb&o o' "2ll"ormall, " a""&me% o be lo*-ormal or $" %"rb&o $e $*$e"abl, " e4 $ere'ore we #o&l% ol, *e $e 8ero-mar*al-a!re"&l 'or e #ome" $e"e "&%e"

    (d) =ow #a $e o+mal a! "#$e%&le *eerae &em+lo,me0 =ow #ome

    $" ma, be o+mal0

    A Some %.%&al" ma, #$oo"e o o wor2 be#a&"e o' a l&m+ "&mbee $e o+mal a! ","em ($" " l2e a &em+lo,mebee4 b& e.er,bo%,4 re*ar%le"" wor2* or o4 *e" ) I' "ome areo *o* o wor24 ma2e" "e"e $a $e low "2lle% %o o

    (e) W$a " $e information asymmetry bewee %.%&al" a%*o.erme $e Mrrlee" mo%el0

    A I%.%&al" 2ow $er ow "2ll le.el (a% wa*e rae)4 $e *o.erme#a ol, ob"er.e $e oal #ome eare% (wa*e me" $o&r" wor2e%)

    END