Suppose the welfare benefit formula is Benefit = $8,000 – 0.67 (Wages > $2,000) (a)...
Suppose the welfare benefit formula is
Benefit = $8,000 – 0.67 (Wages > $2,000)
(a) What is the marginal tax rate on
(i) The first $2,000 of wages?
(ii) Wages above $2,000?
Homework Answers
Given,
Welfare Benefit Formula is
Benefit = $8,000 - 0.67(Wages>$2,000)
i. If the Wages ≤ $2,000, Welfare benefit is maximum and remains constant till a wage of $2,000. Therefore, the marginal tax rate below $2,000 is 0%
ii. From the above formula, we see that if the wages are above $2,000, Welfare benefit decreases by 67%(0.67) for a marginal increase in income above $2,000. Therefore, the marginal tax rate is equal to the marginal rate of decrease in welfare benefit, which is equal to 67%
Add Answer to:
Suppose the welfare benefit formula is
Benefit = $8,000 – 0.67 (Wages > $2,000)
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