Continue with the same economy as in the previous question. B) Find a new capital income tax, tk, with no exemption such that the tax revenue is the same as in part A) (we keep the labor income tax constant). Which capital income tax does the agent prefer, the original one, tk = 0.2, with that exemption of 2, or the new one, t'k, with no exemption? (if you solve an equation and get two roots, take the one with the lowest value) Select one: O a. t=0.129706. The agent prefers the tax of the previous question because of the exemption Ob. tk*-0.129706. The agent prefers this new tax O c. t*=0.1666. The agent prefers the tax of the previous question because of the exemption O d. tk*=0.1666. The agent prefers this new tax
Continue with the same economy as in the previous question. B) Find a new capital income tax, tk, with no exemption such that the tax revenue is the same as in part A) (we keep the labor income tax constant). Which capital income tax does the agent prefer, the original one, tk = 0.2, with that exemption of 2, or the new one, t'k, with no exemption? (if you solve an equation and get two roots, take the one with the lowest value) Select one: O a. t=0.129706. The agent prefers the tax of the previous question because of the exemption Ob. tk*-0.129706. The agent prefers this new tax O c. t*=0.1666. The agent prefers the tax of the previous question because of the exemption O d. tk*=0.1666. The agent prefers this new tax
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Hello! please can you solve question B? Thanks
Transcribed Image Text:Consider an individual that lives for two periods. The utility function is U(c1, c2) = c,05 c205, where c; is
consumption in period i, i=1,2.The price of c1 and c2 is 1. The labor income in the first period is Y =200€ and in
the second Y2 =50€ The interest rate is r= 0.1 (i.e., 10%). There is a proportional tax on labor income of
t = 0.25, i.e. 25% (in both periods). There is also a tax on capital income of t = 0.2, i.e., 20%. The tax on capital
income has an exemption of 2, i.e. the first 2 euros do not pay taxes, but the rest of the capital income is taxed
at the rate 20% (there is no exemption for the labor income). A) Find private savings, S.
Select one:
O a. S=107.454
O b. S=51.3317
O c. S=57.4535
O d. S=99.9502
Continue with the same economy as in the previous question.
B) Find a new capital income tax, tk, with no exemption such that the tax revenue is the same as in part A)
(we keep the labor income tax constant). Which capital income tax does the agent prefer, the original one,
tk = 0.2, with that exemption of 2, or the new one, t'k, with no exemption? (if you solve an equation and get
two roots, take the one with the lowest value)
Select one:
O a. t*=0.129706. The agent prefers the tax of the previous question because of the exemption
O b. t*=0.129706. The agent prefers this new tax
O c. ty*=0.1666. The agent prefers the tax of the previous question because of the exemption
O d. t*=0.1666. The agent prefers this new tax
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