Tax Incidence and Optimal Taxation Suppose there are two differently productive individuals 3' 6 {h,l} in an econ- omy. They are identical up to their work productivity. Both have a quasi-linear production function in leisure and consumption. Leisure is the fraction of a day not worked. Denote the fraction of a day worked as l and consumption as c. Then both individual's preferences are given by the utility function: Hanoi) = (1 - Mm + 6: Denote the two individuals' productivity by 10;. and 10;, respectively. Normalize the price for consumption to unity such that the individual i's consumption is given by c; = tut-lg. 1. Find the fraction of a day an optimizing individual with productivity to; chooses to work. (Note that i cannot be negative!) Hints 1. This means that there is a corner solution for low productivity workers (i.e. for low 11; the marginal utility of increasing work from I = 0 is negative), where they do not work at all. When 11.! increases beyond a certain point it becomes optimal to work