4. Redistributive philosophies and incentives Consider a society consisting of two people. Bob earns an income of $100,000 per year and Cho earns an income of $25,000 per year. The government is considering a redistribution plan that would impose a 20% tax on Bob's income and give the revenue to Cho. Without any incentive distortion, Bob would retain $80,000 and Cho would end up with $45,000. However, let us assume that since Bob will not receive all the income he earns, he decides to work less and earn an income of only $85,000, of which 20% x $85,000 = $17,000 will be owed in taxes. With the redistribution plan, Bob will take home an income of The $17,000 that Bob pays in taxes will be transferred by the government to Cho. Let us assume that since Cho now receives payment from the government, she will not work as many hours and will earn an income from work of only $23,000 instead of her initial $25,000. With the redistribution plan, Cho's total income (including the government payment received) is now Without a redistribution plan, total income in this society is$ After the redistribution plan is implemented, total income in this society is . Therefore, the redistribution plan total income in this society. According to the maximin criterion, the government implement this redistribution plan. Why? The plan benefits Cho, who is the least well off member of society. The government is not entitled to take money away from one person and give it to another. Total societal utility will increase if the plan is enacted