3 Universal Credit vs the Earned Income Tax Credit In the United Kingdom, individnals with no labor income receive a gnaranteed income that is designed to prevent deep poverty. Lor example, a 28 year old single woman with one child and no labor income, the amount of the full credit is $10,000 per vear (all numbers are converted to USD and approximate). lf she starts working, the first $8000 per year she earns is called a work allowance and is not taxed. After that, the credit is reduced by 45 cents for each $1 of income until she exits the program. 1. Draw the annual labor supply diagram for the worker, labeling the pre-program budget constraint, the constraint after the program is in place, and the slopes of these lines. Assume she faces a constant wage rate of $20 per hour and flexible hours choice at work. Label the program parameters, Le. the full credit and maximum work allowance, in the figure. (You do not have to draw indifference curves. ) 2. What is the breakeven income above which she exits the program? Label this point on the figure. Following the discussion in class and in the slides about the regions of the EITC, de- seribe the income and substitution effects' predicted effects on employment and hours for the following groups of workers: 3. Those out of the labor market. Does anyone start to work if they were not working before the program? 4. Workers with less than $8000 in labor income. 5. Workers with incomes above $8000 but below B. 6. What are the advantages and disadvantages of a program like Universal Credit versus the Earned Income Tax Credit? Write two paragraphs of 4-7 sentences each. In the first paragraph, explain the advantages of the Universal Credit program. In the second para- graph, explain the advantages of the Earned Income Tax Credit. It will help to look up the latest EITC parameters online, for example, here: www.taxpolicycenter.org /statistics/eitc- D.l'.filllet(-',l