What is the amount susie must give in period two

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Reference no: EM131988352

Problem

Suppose there are two people in a society that has a 50% income tax. Both people have pretax incomes of $40,000. In period 1, there was no tax deduction; Lillian gave $6,000 to charity, and Susie gave $4,000 to charity. In period 2, the government makes charitable donations tax deductible, and Lillian gives $8,000 to charity. What is the amount Susie must give in period 2 so that the marginal impact of the tax break is exactly twice the inframarginal impact of the tax break?

Reference no: EM131988352

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