Chapter_18_v2

Chapter_18_v2 - Part 5 The United States Revenue System...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Part 5 – The United States Revenue System Chapter 18 – Personal Taxation and Behavior 1. The supply of labor (and other factors) in and out of a city is more elastic than the supply of factors to the nation as a whole. Therefore, an income tax reduction at the city level is likely to lose less revenue than such a reduction at the federal level, ceteris paribus. Just as one can think of “welfare-induced” migration for poor households, one can think of “tax-induced” migration for businesses and possibly workers. If the city lowers tax rates ( and other cities do not respond accordingly) , then one imagines that a number of businesses will enter that state and spur economic activity, increasing the revenues. 2. If individuals view their loss in the labor income taxes as offset by the benefits of public services, labor supply falls by AB hours. This is the compensated change in hours with respect to a change in the net wage rate.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Part 5 – The United States Revenue System 3. If health care benefits are excluded from being tax-exempt, the price of health care increases. Both the income and substitution effects reduce the purchase of health care benefits. 4. The effect of the change in the highest marginal tax rate on the senior’s budget constraint is demonstrated below: If the change occurs, the budget constrain would have a kink in it at $50,000. Earnings less than $50,000 would not be taxed while earnings above would. The slope of the taxed portion would be -(1-tax rate)*wage, while the earnings not taxed would have a slope of
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Chapter_18_v2 - Part 5 The United States Revenue System...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online