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Write a brief essay (3-4 paragraphs or 10-15 sentences should likely suffice) in response to the prompt below. Your answer should rely on concepts and
Write a brief essay (3-4 paragraphs or 10-15 sentences should likely suffice) in response to the prompt below. Your answer should rely on concepts and analyses we covered this semester. Prompt: Consider two policymakers with Marginal Social Welfare Weights (MSWWs) as shown below. Scrooge (as characterized in lecture) cares only about efficiency, so he views $1 as equally valuable whether it is in the hands of the wealthiest citizen or the poorest citizen. Mother Teresa (as characterized in lecture) cares only about eliminating poverty, so she does not value $1 unless it is in the hands of the poorest citizen. Suppose the government is considering taxing the wealthiest citizen and giving the resulting tax revenue to the poorest citizen. Assume that the government has no other expenditure, so it is not obligated to raise tax revenue for any other reason. Further assume that labor supply is not perfectly inelastic or perfectly elastic (i.e. it is upward-sloping). . Briefly explain why Mother Teresa would set a higher tax rate on the wealthiest citizen than Scrooge would. . Would Scrooge ever set a tax rate above 0%? Why or why not? Would Mother Teresa ever set a tax rate below 100%? Why or why not? For each of the two policymakers, explain whether the tax rate they would set differs depending on whether the elasticity of labor supply were low (e.g. 0.1) vs. high (e.g. 1.0). Scrooge Mother Teresa MSWW MSWW Income Income Poorer Richer Poorer Richer
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