Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem on Budget Constraints Als Assume the gross wage w-$10/hour and gross nonwage income YN-$5,000/year. a maximum of 6,000 hours of leisure per year (i.e.,T-6,000/year),
Problem on Budget Constraints Als Assume the gross wage w-$10/hour and gross nonwage income YN-$5,000/year. a maximum of 6,000 hours of leisure per year (i.e.,T-6,000/year), so that full income for worker is $65,000. the 1. Draw the annual budget constraint assuming no taxes or transfers. Draw the budget constraint under each of the following tax and transfer schemes. 2. A flat tax on gross earnings of 2096. A progressive tax on earnings where the tax rate is 20% on earnings up to $50,000 and 30% on earnings above $50,000. 4. A welfare program that pays $8,000 per year if the person does not work and reduces the welfare benefit dollar for dollar with earnings (100% benefit reduction rate). Assume that the individual does not have any other nonwage income (i.e., YN-0). 5. The federal Earned Income Tax Credit (EITC) program, which has the following features (approximate) for a family of 4. For annual earnings below $14,000, a person receives a wage subsidy of 40%. The maximum subsidy received is therefore $5,600. The subsidy remains constant at $5,600 until earnings reach $24,000. Then, the subsidy is gradually reduced at the rate of 20% per dollar of earnings until it becomes zero at an earnings level of $52,000. To simplify the diagram for the EITC, assume that the individual does not have any nonwage income (i.e., YN-0)
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