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Suppose the Working Income Tax Benefit tops up a single individual's income by 25 percent of the amount that employment earnings exceed $3000, up to...

2. Suppose the Working Income Tax Benefit tops up a single individual’s income by 25
percent of the amount that employment earnings exceed $3000, up to a maximum
payment of $950. Assume the refundable credit is reduced by 15 percent on the amount
of earnings in excess of $10,500. (4 marks)
a. Then over what range of earnings is the credit at its maximum value?
b. At what income is the credit reduced to zero?
c. Let the statutory income tax be a flat rate of 30 percent, with a basic personal
exemption of $10,000. Ignore all other taxes and program benefits in the
economy. Calculate and describe the effective marginal tax rate (EMTR) faced by
this individual on income ranging from zero to $20,000.
d. Discuss the incentive effects associated with this EMTR schedule, regarding the
decision to join the workforce and to increase hours worked, say, from part-time
to full-time.

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