What effect would the following have on the Lorenz curve of after-tax incomes? (Assume that the taxes are spent by the government on a representative slice of GDP.)
a. A proportional income tax (i.e., one taxing all incomes at the same rate)
b. A progressive income tax (i.e., one taxing high incomes more heavily than low incomes)
c. A sharp increase in taxes on cigarettes and food
Draw four Lorenz curves to illustrate the original income distribution and the income distribution after each of the three tax categories.