Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hello, I need help understanding how to do these problems. Thank you in advance! 11. At /k, what is the value of the retiree's net

image text in transcribedimage text in transcribed

Hello, I need help understanding how to do these problems. Thank you in advance!

image text in transcribedimage text in transcribed
11. At /k, what is the value of the retiree's net income? 12. At /R, what is the value of the worker's net income? 13. Consider the egalitarian solution. What tax rate, , would equalize the worker's and retiree's net incomes? Restrict attention only to the tax rate that results in positive hours worked. Hint: time to pull out your trusty quadratic formula. 14. At , what is the value of each person's net income? 15. Now consider the Rawlsian solution. What tax rate would a Rawlsian impose on the worker? Note that this must satisfy the Difference Principle, i.e., if net incomes are unequal, the net income of the least advantaged (poorest) must be greater than with equal net incomes.Rawls and Egalitarianism There are two equally sized groups in an economy: workers, whose labor generates income, and retirees, who live from the revenues of taxes imposed on workers' income. Suppose this relationship may be modeled by one representative worker and one representative retiree as follows. Let: / 2 0: labor (e.g., daily hours of work) E [0,1] : tax on worker's gross income C =16/ +12 : opportunity cost of labor (e.g., costs of worker's effort) Worker's net income: W = (1-r) .481 - F Fixed costs of employment: A = [96, if/* > 0 0 , if * $0 Worker's utility: U = W-C = (1-1).481-96-161 -12 Retiree's net income: R = t . 48/ - A (96, if /*>0 and (0 Fixed administrative costs: A= 0 , if *=0 or #=0 The fixed costs of employment, F, are explicit monetary costs such as transportation, work clothing, etc., that the worker only incurs, if it is optimal to work, i.e., / >0. The administrative costs (A) represent the explicit monetary cost of administering the retirement program, which is paid lump sum by each worker only if both 1) it is optimal for the worker to work, and 2) the tax is positive. 1. Suppose the tax rate is zero, i.e., / =0. What is the value of the worker's utility maximizing /, 2. When / = 0, what is the value of the worker's net income, W* ? 3. What does the retiree's net income, R', equal, if t = 0? 4. Suppose now the tax rate is 100%, i.e., / =1. What is the value of the worker's utility maximizing /? 5. When f = 1, what is the value of the worker's net income? 6. What does the retiree's net income equal, if f = 1? 7. In general, find the equation of the worker's utility maximizing I, I'(f), expressed in terms of t. 8. Express the worker's net income in terms of t. Simplify. 9. Express the retiree's net income in terms of t. Simplify. 10. What tax rate, , would maximize the retiree's income

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Economics

Authors: Thomas Pugel

16th Edition

0078021774, 9780078021770

More Books

Students also viewed these Economics questions

Question

anys, anys

Answered: 1 week ago