3. Redistributive philosophies and incentives Consider a society comprised of two people. Lorenzo earns an income of $115,000 per year and Neha earns an income of $30,000 per year. The government in nt is considering a redistribution plan that would impose a 25% tax on Lorenzo's income and give the revenue to Neha. Without any incentive distortion, Lorenzo would retain $86,250 and Neha would end up with $58,750. However, let us assume that since Lorenzo will not receive all the income he earns, he decides to work less and earn an income of only $105,000, of which 25% x $105,000 = $26,250 will be owed In taxes. With the redistribution plan, Lorenzo will take home an income of s I. The $26,250 that Lorenzo pays in taxes will be transferred by the government to Neha. Let us assume that since Neha now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Neha's total income (including the government payment received) is now s Without a redistribution plan, total income in this society is s Therefore, the redistribution plan After the redistribution plan is implemented, total income in this society is total income in this society. According to the utilitarian political philosophy, the $26,250 transferred from Lorenzo to Neha will benefit Neha the following statements is true according to this philosophy? than it hurts Lorenzo. Which of The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss. The ment should not institute the plan because it has no right to take money from one person and give it to another. The government should definitely institute the plan because it will increase overall utility.