Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 28, Problem 6CQ
To determine
Impact of income transfer on income.
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What makes the Earned Income Tax Credit (EITC) different from other poverty-fighting programs?
The amount of the credit is doubled if the head of household is attending college.
The tax credit is phased out gradually, rather than at a specific income cutoff point.
The amount of the credit is not determined by the number of dependent children in the household.
The EITC doesn't require the recipient to pay a minimum amount of income tax in order to receive the credit.
It creates less of an incentive to work than other programs.
How do factor endowments affect personal income? Examine different provisions employed by the government in dealing with inequality in the distribution of income.
Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income.
Chapter 28 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- 1) What are the pros and cons of in-kind (rather than cash) transfers to the poor?arrow_forwardIn social welfare programs, there is no way to change either the benefit reduction rate or the benefit guarantee to simultaneously achieve all three goals of encouraging work, redistributing more income and lowering costs. What is this dilemma called?arrow_forwardIn 2000, the ratio of people age 65 or older to people ages 20 to 64 in Ecocountry was 38,4 %. In the year 2060, this ratio is expected to be 56,8 %. Assuming a pay as-you-go Social Security system, What change in the payroll tax rate between 2000 and 2060 would be needed to maintain the 2000 ratio of benefits to wages? If the tax rate were kept constant, what would happen to the ratio of benefits to wages? What other policies can be used for Social Security Reform?arrow_forward
- Which of the following provides the best explanation for how consumer credit can exacerbate inequality? People with lower wealth and incomes must sacrifice more capacity and capital in order to acquire credit. People with lower wealth and incomes purchase less, so since credit allows all people to make purchases sooner, credit provides less benefit to these people. People with lower wealth and incomes may have less access to credit and pay higher interest rates when they are approved. People with lower wealth and incomes are offered credit with less collateral.arrow_forwardTheoretically and graphically explain the effect of Benazir income support program on the welfare of the consumers.arrow_forwardPoverty is measured by the number of people who fall below a certain level of income—called the poverty line—that defines the income one needs for a basic standard of living. The official definition of the poverty line traces back to Group of answer choices A)The Great Depression B)Mollie Orshansky, whose idea was to define a poverty line based on the cost of a healthy diet. C)1953 and the ability to pay for housing and food. D)The 1965 cost of providing food, housing, and transportation.arrow_forward
- What do you think about the income trap - is it a myth or reality? How does the middle-income trap affect the equality and poverty of citizens? What can be done to avoid or escape from the trap? Answer correctly and explain within 40 mins will give you positive feedback.arrow_forwardSuppose the government implements a negative income tax plan to deal with the poverty problem. The negative income tax rate is set at 30%, and the break-even level of income is set at $20,000. 1. What is the guaranteed annual income level assured each family,. regardless of the amount of income earned by the family? 2. If a family earns $10,000 income, what will their negative income tax subsidy be? 3. If a family earns $30,000 income, what is their disposable income?arrow_forwardUsing the figure below, calculate the gain from redistributing $25,000 from those earning $100,000 to those earning $50,000. Why do you think that this gain in well-being is smaller than the redistribution in the example in the chapter, which is redistributed from someone earning $200,000 to someone earning $20,000? What are some potential problems with this redistribution plan?arrow_forward
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