Since 2010, the federal government and many provinces have increased the tax rate on top income earners. This question asks you to think about whether these policies were a good idea. In a 2015 paper titled Taxation and Top Incomes in Canada, Kevin Milligan and Michael Smart estimated that the elasticity of taxable income (ETI) for the top one percent of income earnings in Canada is z = 0.68. (a) The income cutoff to be in the top one percent in Nova Scotia is $154,588 (or $154.588 thousand dollars) and the average taxable income reported by individual tax filers in the top one percent is $273,712 (or $273.712 thousand dollars). In 2015, 7,240 individual tax filers were in the top one percent in Nova Scotia. Suppose that the province is interested in increasing its top marginal rate from to + , where is a small positive number. What is the Mechanical effect of this tax reform (i.e. calculate M)? (b) The current top marginal tax rate in Nova Scotia (federal + provincial) is 49.4%. Using the ETI estimate provided, what is the Behavioral effect of this tax reform (i.e. calculate B)? 1 (c) Using the value for z provided, calculate the mechanical effect M, the behavioural effect B and the total revenue effect of the tax reform (i.e. M+B) in the following table. To reduce clutter, please report your answers for M, B and M +B in millions of dollars (i.e. 000,000s). Province z($000s) z($000s) Tax Filers Current M ($ millions) B ($ millions) M + B ($ millions) Newfoundland 283.720 168.094 4,170 0.430 PEI 203.948 139.722 1,120 0.469 Nova Scotia 273.712 154.588 7,240 0.494 New Brunswick 248.546 147.010 5,970 0.428 Quebec 326.472 169.949 62,510 0.477 Ontario 477.951 215.316 98,060 0.463 Manitoba 300.529 161.098 9,140 0.460 Saskatchewan 344.253 180.420 7,850 0.435 Alberta 648.475 281.096 27,530 0.390 British Columbia 406.730 190.151 34,190 0.431 (d) How many provinces experience an increase in tax revenue because of this reform? In 3-5 sentences, describe some of the similarities among provinces that experience an increase in tax revenue?