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%×$90,000=$22,50025%×$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
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%×$90,000=$22,50025%×$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
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter12: Income Distribution, Poverty, And Discrimination
Section: Chapter Questions
Problem 10SQ
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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%×$90,000=$22,50025%×$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
. After the redistribution plan is implemented, total income in this society is
. Therefore, the redistribution plan total income in this society.
According to the utilitarian political philosophy, the $22,500 transferred from Jacques to Kyoko will benefit Kyoko than it hurts Jacques. Which of the following statements is true according to this philosophy?
The government should not institute the plan because it has no right to take money from one person and give it to another.
The government should definitely institute the plan because it will increase overall utility.
The redistribution may or may not be desirable, depending on the relative magnitude of the utility gain and the efficiency loss.
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