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In the problem we consider whether consumers would be better off if the government raised revenue via a sales tax rather than income tax. We
In the problem we consider whether consumers would be better off if the government raised revenue via a sales tax rather than income tax. We only begin addressing the sales vs. income tax issue here, we will not address it in its full complexity. In the problem below, you are asked to consider a model in which a consumer's preference for two goods can be represented by the following utility function: U(C1,C2) = ln(C1) + In(C2) (1) The prices firms list for the two goods are given by p and p2 respectively. The consumers income in a year is given by I, there is no savings. (a) (1 mark] Write down the consumer's budget constraint for the year if the government were to tax income at a rate of t per dollar earned with 0
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