Tax Incentives for Retirement Savings (10 points) In this question, we begin by assuming that Jack (from question 1) has been savings at the rate of 10% in a bank, which gets taxed at the rate of 25%. All other information about his yearly income, and his consumption in the current period remains the same as in Question 1. a. (3 points) First, draw the after-tax budget constraint for Jack and indicate the slope of the budget constraint, the intercepts of the budget constraint on both axes, the value of current and future consumptions, and the current savings. b. (7 points) Now suppose that retirement savings is in tax-subsidized form, where savings are taxed much more lightly. The delay in tax payments (as taxes are not paid until retirement) reduces the tax burden on savings from tto t*k, where k is the share of the tax burden that remains after accounting for the delay in tax payments. Suppose the tax, t = 43% and the share of the tax burden, k= .45. i. (2 points) How would this change the graphical representation in part a? Describe in words. ii. (2 points) Describe the income and substitution effect of this change from tax on retirement savings to tax-subsidized retirement savings. iii. (1 point) Depict the changes on the same graph used for part a. iv. (2 points) Discuss the limitations of tax-subsidized retirement savings. Tax Incentives for Retirement Savings (10 points) In this question, we begin by assuming that Jack (from question 1) has been savings at the rate of 10% in a bank, which gets taxed at the rate of 25%. All other information about his yearly income, and his consumption in the current period remains the same as in Question 1. a. (3 points) First, draw the after-tax budget constraint for Jack and indicate the slope of the budget constraint, the intercepts of the budget constraint on both axes, the value of current and future consumptions, and the current savings. b. (7 points) Now suppose that retirement savings is in tax-subsidized form, where savings are taxed much more lightly. The delay in tax payments (as taxes are not paid until retirement) reduces the tax burden on savings from tto t*k, where k is the share of the tax burden that remains after accounting for the delay in tax payments. Suppose the tax, t = 43% and the share of the tax burden, k= .45. i. (2 points) How would this change the graphical representation in part a? Describe in words. ii. (2 points) Describe the income and substitution effect of this change from tax on retirement savings to tax-subsidized retirement savings. iii. (1 point) Depict the changes on the same graph used for part a. iv. (2 points) Discuss the limitations of tax-subsidized retirement savings