Question
My old state New Hampshire is 1 of just 7 states that either offers no income tax or has a limited system (they don't tax
My old state New Hampshire is 1 of just 7 states that either offers no income tax or has a limited system (they don't tax wage income but do tax income from dividends and interest). Assume that there are no minimum wage laws and that the market is allowed to reach equilibrium. Also assume that the demand for labor and supply of labor are both unit elastic.
a.Show me New Hampshire's labor market at equilibrium under the current law. Label the equilibrium wage W = $10 and equilibrium employment L. Be sure to properly label everything! Also in the real world, who is the supply of labor and who is the demand of labor?
b.Now suppose that New Hampshire decides to join their 43 other peers in enacting an income tax on wages. Imagine they enact a flat tax of $4 on all wages and further that firms are the ones who have to pay this tax. On a supply and demand graph, show me how will this new law will initially impact New Hampshire's labor market? Label the new equilibrium wage WTax and the new equilibrium employment LTax.
c.What is the value in terms of dollars of WTax? Also how much of the income tax did firms pay? How much of the income tax did workers pay?
d.Based on your answers above, why does New Hampshire currently not charge an income tax on wages? Briefly explain your answer (i.e. write a couple of sentences making your point).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started