What is the optimal tax rate, Public Economics

Assignment Help:

Jack and Jill live alone on  an island. Their labour supply schedules are  identical and given by L = (1 - t)w, where t is the income tax rate and w denotes the wage. Jill's wage is 6 and Jack's is 2. The tax paid by an individual is  twL  and each receives a transfer equal to half the total revenues. Jack and Jill have identical utility functions given by U =C  - (1/2)L2
, where  C  denotes consumption (the individual's income after tax and transfer). If the social welfare function is W = 3Ujack + UJill, what is the optimal tax rate?

[Hint: Write W as a function of the tax rate t.] Why is the optimal tax rate not 0? Why is
it not 1?


Related Discussions:- What is the optimal tax rate

Competitive Equilibrium, Alice and Bob survive on hamburgers and salads. Al...

Alice and Bob survive on hamburgers and salads. Aliceís utility function is UA = hA(sA 1) where hA and sA are her consumption of hamburgers and salads respectively. Bobís utility

Summary of green accounting, Normal 0 false false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Cable tax to the satellite tax, According to estimates by Goolsbee and Petr...

According to estimates by Goolsbee and Petrin (2004), the elasticity of demand for basic cable service is ?0.51, and the elasticity of demand for direct broadcast satellites is ?7.

Model of industry protection of grossman and helpman, Consider the model of...

Consider the model of industry protection of Grossman and Helpman. There are two industries A and B, each producing good X and Y respectively. All other things being equal, the dem

Economic outcomes, Suppose that economic outcomes can be classified as eith...

Suppose that economic outcomes can be classified as either good or bad. Governments differ in ability and this affects the likelihood of good outcomes. There are two types of gover

Health care issue , You can choose any one from the four topics listed in t...

You can choose any one from the four topics listed in the following: I. Health economic theory and practice 1. Based on your work experience, expertise, or the field

Comment on each of the following statements, Unions tie the hands of manage...

Unions tie the hands of management and inhibit efficient decision making

Wage regulations, how wage increase of fixed income groups'' will affect th...

how wage increase of fixed income groups'' will affect the overall economy? what are effects exactly?

National boundaries as institutions in policy processes, The essence of a n...

The essence of a national boundary is separate the ‘self' from the ‘other'. Thus natural boundaries, like all institutions have their own set of internal rules which govern their

Aspects of environmental functions, Normal 0 false false fa...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd