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Which plan is likely to be more expensive to the government

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Reference no: EM131600373

Question: Suppose the government has to choose between two antipoverty programs. Each program guarantees that every family has at least $15,000 of income. One scheme establishes a negative income tax where:Taxes = (0.50 of income) - $15,000.The other scheme is for the government to guarantee every family at least $15,000 to spend, and if a family falls short, the government will simply make up the difference.

a. Using the negative income tax scheme described above, fill out the following table.

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b. What is the value of income for which this family neither receives a subsidy nor pays any tax? (That is, how high does income have to be for the family to stop receiving a subsidy?)

c. Under the second scheme where the government simply guarantees at least $15.000 to every family, what is the level of income at which a family stops receiving a subsidy? Explain.

d. Which plan is likely to be more expensive to the government? Explain.

e. Suppose a poor family that only earns $5,000 per year decides to plant a garden and sell the produce in a "farmer's market" in the city. Suppose the family earns an additional $5,000 selling the produce. What is the family's final income under each scheme? What is the effective tax rate on the $5,000 earned by the family under each scheme? Which scheme promotes a work ethic among the poor and which one discourages work? Explain.

Reference no: EM131600373

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