Under a welfare plan, poor people are given a lump sum payment of L If they accept this welfare payment, they must pay a high marginal tax rate, 1 2, on anything they earn If they do not accept the welfare payment, they do not have to pay a tax on their earnings Show that whether an individual acce...

See figure Individuals with a high preference for lei ...

Under a welfare plan, poor people are given a lump-sum payment of L. If they accept this

Question:

Under a welfare plan, poor people are given a lump-sum payment of L. If they accept this welfare payment, they must pay a high marginal tax rate, α = 1/2, on anything they earn. If they do not accept the welfare payment, they do not have to pay a tax on their earnings. Show that whether an individual accepts welfare depends on the individual's tastes?