What is the optimal tax rate, Public Economics

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?

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







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

Write a short note on product mix efficiency?


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

Q. Describe ex-ante heterogeneity? First conflict reflects heterogeneity among agents due to different policy preferences. Individuals or agents are heterogeneous in a number o

The monetarist and fiscal controversy is still on. The recent history of the U.S. looks like a success story of the monetarists; but besides pure luck, it involved strong element o

Types of production function

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

Let us now consider a situation in which we know the timing of a change in policy but are unsure about the composition of the future policy. The association of different policy co

We live in a globalized world economy. Our policy agenda, as we have discussed earlier have changed enormously to include environment, humanity in general as well as the conventio