The government tax revenue is REV = tw*(t)N*(t). Among the options provided below, which tax rate yields the largest tax revenue? 0.25 (i.e. 25%) 0.5 (i.e. 50%) 0.75 (i.e. 75%) 0.99 (i.e. 99%) Consider the decisions of a representative consumer whose preferences are given by: u(C,1) = In C+ Inl where C is the quantity of consumption and 1 is the quantity of leisure. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1, with N³ as the time spent working (or the labor supply). Further, consumer take wages as given and obtain after-tax labor income that is equal to w(1t)Ns where t is the income tax rate (0 < t < 1). Thus the consumer's budget constraint is given by C = w(1 − t)(1 − 1) + π where is the real dividend income received from the representative firm (i.e. firm profits).
The government tax revenue is REV = tw*(t)N*(t). Among the options provided below, which tax rate yields the largest tax revenue? 0.25 (i.e. 25%) 0.5 (i.e. 50%) 0.75 (i.e. 75%) 0.99 (i.e. 99%) Consider the decisions of a representative consumer whose preferences are given by: u(C,1) = In C+ Inl where C is the quantity of consumption and 1 is the quantity of leisure. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1, with N³ as the time spent working (or the labor supply). Further, consumer take wages as given and obtain after-tax labor income that is equal to w(1t)Ns where t is the income tax rate (0 < t < 1). Thus the consumer's budget constraint is given by C = w(1 − t)(1 − 1) + π where is the real dividend income received from the representative firm (i.e. firm profits).
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.2P
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Transcribed Image Text:The government tax revenue is REV = tw*(t)N*(t). Among the options provided below, which
tax rate yields the largest tax revenue?
0.25 (i.e. 25%)
0.5 (i.e. 50%)
0.75 (i.e. 75%)
0.99 (i.e. 99%)
Transcribed Image Text:Consider the decisions of a representative consumer whose preferences are given by:
u(C,1) = In C+ Inl
where C is the quantity of consumption and 1 is the quantity of leisure.
The consumer faces two constraints.
The time constraint is given by 1 + N³ = 1, with N³ as the time spent working (or the labor
supply). Further, consumer take wages as given and obtain after-tax labor income that is equal to
w(1t)Ns where t is the income tax rate (0 < t < 1). Thus the consumer's budget constraint is
given by
C = w(1 − t)(1 − 1) + π
where is the real dividend income received from the representative firm (i.e. firm profits).
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