The government of a small country is planning sweeping changes in the tax structure in order to provide a more equitable distribution of income. The Lorenz curves for the current income distribution and for the projected income distribution after enactment of the tax changes are as follows. f(x) = x2.1 Current Lorenz curve g(x) = 0.6x+0.4x2 Projected Lorenz curve after changes in tax laws Find the Gini index of income concentration for each Lorenz curve. Will the proposed changes provide a more equitable income distribution? Explain. Identify the integrand for the computation of the current and projected Gini indices. The current Gini index is given by 2 ∫ 0 1 ....... dx and the projected Gini index is given by 2 ∫ 0 1 ...... dx
The government of a small country is planning sweeping changes in the tax structure in order to provide a more equitable distribution of income. The Lorenz curves for the current income distribution and for the projected income distribution after enactment of the tax changes are as follows. f(x) = x2.1 Current Lorenz curve g(x) = 0.6x+0.4x2 Projected Lorenz curve after changes in tax laws Find the Gini index of income concentration for each Lorenz curve. Will the proposed changes provide a more equitable income distribution? Explain. Identify the integrand for the computation of the current and projected Gini indices. The current Gini index is given by 2 ∫ 0 1 ....... dx and the projected Gini index is given by 2 ∫ 0 1 ...... dx
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The government of a small country is planning sweeping changes in the tax structure in order to provide a more equitable distribution of income. The Lorenz curves for the current income distribution and for the projected income distribution after enactment of the tax changes are as follows.
f(x)
|
=
|
x2.1
|
Current Lorenz curve
|
g(x)
|
=
|
0.6x+0.4x2
|
Projected Lorenz curve after changes in tax laws
|
Find the Gini index of income concentration for each Lorenz curve. Will the proposed changes provide a more equitable income distribution? Explain.
Identify the integrand for the computation of the current and projected Gini indices.
The current Gini index is given by
2 ∫ 0 1 ....... dx
and the projected Gini index is given by
2 ∫ 0 1 ...... dx.
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