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Homework 8

# Homework 8 - year 2030 Assume that the current tax rate on...

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Economics 1480 Homework #8 We plan to drop the lowest homework grade and this homework can thus be considered optional . Problem 1: Social Security Trust Fund Recall from lecture that the condition for a balanced budget for Social Security states that total benefits paid out of the system must equal receipts from the payroll tax system: (1) B × N b = t × N w × W where B equals benefits per retiree N b equals the number of retirees, or beneficiaries t equals the tax rate on workers N w equals the number of workers W equals the wage of workers This equation can be re-written as follows: (2) t = (N b / N w ) × (B/W) where N b / N w is known as the dependency ratio and B/W is the replacement ratio. As you know, the dependency ratio is expected to rise from 1/3 at current to 1/2 by the
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Unformatted text preview: year 2030. Assume that the current tax rate on workers (t) is 10 percent and that current benefits per retiree (B) equal \$15,000. Further, assume that the budget for Social Security is currently balanced. Assuming that the replacement rate (B/W) is held fixed, what will the tax rate on workers (t) need to be in 2030 in order for the budget to remain balanced? Suppose instead that the tax rate (t) and wage of workers (W) is held fixed. What will benefits per retiree (B) need to be in 2030 in order for the budget to remain balanced? Problem 2: Rosen, Chapter 21, problem 8 Problem 3: Rosen, Chapter 22, problem 5...
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