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 = 3U_jack + U_Jill, 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?

Posted Date: 3/16/2013 1:10:40 AM | Location : United States

Ask an Expert

Related Discussions:- What is the optimal tax rate, Assignment Help, Ask Question on What is the optimal tax rate, Get Answer, Expert's Help, What is the optimal tax rate Discussions

Write discussion on What is the optimal tax rate
Your posts are moderated

Write your message here..

Related Questions

Current system of national income accounts, Normal 0 false fa... Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Explain what is economic growth, Question 1: i. Explain the likely effe... Question 1: i. Explain the likely effects of a recession on a government's budget? ii. How is the operation of fiscal policy supposed to affect the level of economic activ

Informal regulations on pollution, Normal 0 false false fal... Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Annotated bibliography guidelines, The purpose of this assignment is to pro... The purpose of this assignment is to provide you an opportunity to enhance your skills related to use of APA format to cite references and selection of research articles most relev

.., Consider the Edgeworth box with the production of consumption goods B a... Consider the Edgeworth box with the production of consumption goods B and health- investment goods I. (a) Briefly explain the derivation of the contract curve. (b) How does one der

Rent seekers versus producers, This variant of coordination problem seeks t... This variant of coordination problem seeks the answer to why some countries fail to grow when public and private rent seeking makes property rights insecure. One reason is that re

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

#titleprivatization.., does privatization decentralise economic power? disc... does privatization decentralise economic power? discuss

Private & public goods, what do you understand by private & public goods. D... what do you understand by private & public goods. Distinguish between private and public goods.

Example on uncertainty and the policy process, Q. Example on Uncertainty an... Q. Example on Uncertainty and the policy process? For example, if it is expected that current government will be replaced in upcoming election, and the next government will be