Assume that in a given country, tax revenues, T, depend on income, I, according to the formula T= - 4,000 + 0.21 Thus, for example, when a household has an income of $50,000, its tax burden is -4,000+ 0.2 x 50,000, or $6,000. Is this a progressive tax schedule? [Hint: Compute average tax rates at several different levels of income.] Now let's generalize the tax schedule in this problem to: T= a + ti where a and t are numbers. (For example, in the tax schedule above, a =-4,000 and t = 0.2.) Write down a formula for the average tax rate as a function of
Assume that in a given country, tax revenues, T, depend on income, I, according to the formula T= - 4,000 + 0.21 Thus, for example, when a household has an income of $50,000, its tax burden is -4,000+ 0.2 x 50,000, or $6,000. Is this a progressive tax schedule? [Hint: Compute average tax rates at several different levels of income.] Now let's generalize the tax schedule in this problem to: T= a + ti where a and t are numbers. (For example, in the tax schedule above, a =-4,000 and t = 0.2.) Write down a formula for the average tax rate as a function of
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume that in a given country, tax revenues, T, depend on income, I, according to the formula T= - 4,000 + 0.21 Thus, for example, when a household has an income of $50,000, its tax burden is -4,000+ 0.2 x 50,000, or $6,000. Is this a progressive tax schedule? [Hint: Compute average tax rates at several different levels of income.] Now let's generalize the tax schedule in this problem to: T= a + ti where a and t are numbers. (For example, in the tax schedule above, a =-4,000 and t = 0.2.) Write down a formula for the average tax rate as a function of the level of income. Show that the tax system is progressive if a is negative, and regressive if a is positive. (Hint: The average tax rate is TIL.]
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