..........

Australia, New Zealand, and Indonesia are considering introducing a linear income tax rate and have invited you to give your expert opinion on the optimal level of the tax rate. As a first step, each country has conducted a pilot programme to estimate parameters that they think will be useful in guiding your advice (1) 9 = zx X 8 and (2) e = x 71, where z, is individual income, & is individual consumption u' is individual utility function, Z is average income, and e is the elasticity of average income with respec to the net-of-tax rate (1 - 7). The estimates are: Australia New Zealand Indonesia .2 .5 Assume that governments in the three countries want to maximise a utilitarian social welfare function. [TRUE/FALSE/UNCERTAIN; Explain (in your own words)] "Based on the estimates above, the linear income tax rate maximising tax revenue should be the highest in Australia and the linear income tax rate maximising social welfare should be the highest in Indonesia."