4. Redistributive philosophies and incentives Consider a society consisting of two people. Jacques earns an income of $100,000 per year, and Kyoko earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Jacques's income and give the revenue to Kyoko. Without any incentive distortion, Jacques would retain $75,000 and Kyoko would end up with $55,000. However, let us assume that since Jacques will not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 25% x $90,000 = $22,500 will be owed in taxes. With the redistribution plan, Jacques will take home an income of $ The $22,500 that Jacques pays in taxes will be transferred by the government to Kyoko. Let us assume that since Kyoko now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Kyoko's total income (including the government payment received) is now $ Without a redistribution plan, total income in this society is $ is $ . Therefore, the redistribution plan . After the redistribution plan is implemented, total income in this society total income in this society. According to the utilitarian political philosophy, the $22,500 transferred from Jacques to Kyoko will benefit Kyoko the following statements is true according to this philosophy? The government should definitely institute the plan because it will increase overall utility. than it hurts Jacques. Which of The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss. The government should not institute the plan because it has no right to take money from one person and give it to another.
4. Redistributive philosophies and incentives Consider a society consisting of two people. Jacques earns an income of $100,000 per year, and Kyoko earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Jacques's income and give the revenue to Kyoko. Without any incentive distortion, Jacques would retain $75,000 and Kyoko would end up with $55,000. However, let us assume that since Jacques will not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 25% x $90,000 = $22,500 will be owed in taxes. With the redistribution plan, Jacques will take home an income of $ The $22,500 that Jacques pays in taxes will be transferred by the government to Kyoko. Let us assume that since Kyoko now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Kyoko's total income (including the government payment received) is now $ Without a redistribution plan, total income in this society is $ is $ . Therefore, the redistribution plan . After the redistribution plan is implemented, total income in this society total income in this society. According to the utilitarian political philosophy, the $22,500 transferred from Jacques to Kyoko will benefit Kyoko the following statements is true according to this philosophy? The government should definitely institute the plan because it will increase overall utility. than it hurts Jacques. Which of The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss. The government should not institute the plan because it has no right to take money from one person and give it to another.
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Transcribed Image Text:4. Redistributive philosophies and incentives
Consider a society consisting of two people. Jacques earns an income of $100,000 per year, and Kyoko earns an income of $30,000 per year. The
government is considering a redistribution plan that would impose a 25% tax on Jacques's income and give the revenue to Kyoko.
Without any incentive distortion, Jacques would retain $75,000 and Kyoko would end up with $55,000. However, let us assume that since Jacques will
not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 25% x $90,000 = $22,500 will be owed in
taxes.
With the redistribution plan, Jacques will take home an income of $
The $22,500 that Jacques pays in taxes will be transferred by the government to Kyoko. Let us assume that since Kyoko now receives payment from
the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000.
With the redistribution plan, Kyoko's total income (including the government payment received) is now $
Without a redistribution plan, total income in this society is $
is $
. Therefore, the redistribution plan
. After the redistribution plan is implemented, total income in this society
total income in this society.
According to the utilitarian political philosophy, the $22,500 transferred from Jacques to Kyoko will benefit Kyoko
the following statements is true according to this philosophy?
The government should definitely institute the plan because it will increase overall utility.
than it hurts Jacques. Which of
The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss.
The government should not institute the plan because it has no right to take money from one person and give it to another.
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