w 10 In the country of Noname, there have historically been no taxes.A new Congress is elected in Noname and implements the following tax reform:10.Every individual in the country will receive a universal basic income of $50 annually,which will be paid for by a tax rate of 20% on pre-tax income over $100 annually(this means the first $100 is exempt and a tax of 20% applies only to the income inexcess of $100). Everyone who chooses to work can earn a wage of $5 (pre-tax) perhour worked both before and after the reform.a)For each pre-reform labor supply (in hours) in the table below,determine the sign of the substitution effect, income effect and total effect of thereform compared to a baseline with no such tax change, and fill in thatdetermination on the following table. Use ↑ to indicate if the effect incentivizes work,t if it disincentives work, 0 is there is no effect, and ? if the effect is uncertain.Pre-reform labor supplySubstitution effect Income effect Total effect103080Now suppose that the demand for labor is Q=84-2W and the labor supplyfunction is Q=2W. Assume that there are no externalities or pre-existing tax (ignorethe income tax here). The government decides to raise revenue by taxing a unitpayroll tax t=2 on the firm.a)Calculate the pre-tax equilibrium, and the post-tax equilibrium.Graph the supply and demand curves, how the curves shift after the implementationof the tax, and the pre-tax equilibrium, and the post-tax equilibrium.b)Calculate the tax incidence for firms and workers. Calculate thedeadweight loss (DWL) and illustrate the DWL in the graph.c)Recalculate the tax incidence and DWL using elasticities.d)Now, suppose the payroll tax is collected for the social securitypayment in the future. The corresponding value of the social security payment isone dollar for each dollar of the tax payment. Mathematically, labor supply curvebecomes Q=2(W+2). What is the DWL and tax incidence of the payroll tax?

Substitution Effect: The change in labor supply due to the change in relative wages (pre-tax wage…

10. In the country of Noname, there have historically been no taxes. A new Congress is elected in Noname and implements the following tax reform: Every individual in the country will receive a universal basic income of $50 annually, which will be paid for by a tax rate of 20% on pre-tax income over $100 annually (this means the first $100 is exempt and a tax of 20% applies only to the income in excess of $100). Everyone who chooses to work can earn a wage of $5 (pre-tax) per hour worked both before and after the reform.

10. In the country of Noname, there have historically been no taxes. A new Congress is elected in Noname and implements the following tax reform: Every individual in the country will receive a universal basic income of $50 annually, which will be paid for by a tax rate of 20% on pre-tax income over $100 annually (this means the first $100 is exempt and a tax of 20% applies only to the income in excess of $100). Everyone who chooses to work can earn a wage of $5 (pre-tax) per hour worked both before and after the reform.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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