LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 8, Problem 9P
To determine
Determine how the given tax change policy affects the job mobility.
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Since the early 1970’s, the U.S. government has had a program called the Earned Income Tax Credit. A simplified version of this program works as follows: The government subsidizes your wages by paying you 50% in addition to what your employer paid you but the subsidy applies only to the first $60 (per day) you receive from your employer. If you earn more than $60 per day, the government gives you only the subsidy for the first $60 earned but nothing for anything additional you earn. For instance, if you earn $100 per day, the government would give you 50% of the first $60 you earned — or $30. Suppose you consider workers 1 and 2. Both can work up to 10 hours per day at a wage of $10 per hour, and after the policy is put in place you observe that worker 1 works 7 hours per day while worker 2 works 5 hours per day. Assume throughout that Leisure is a normal good.
(a) Illustrate these workers’ budget constraints with and without the program.
(b) Can you tell whether the program has…
Suppose that initially a seller's "bottom line" asking price for a particular car is equal to $23,000. However, a new tax is instituted that will tax the seller in the amount of 10% on the sale. What is the seller's new "bottom line" after factoring in the new tax?
Suppose you earned $60,000 per year and pay taxes based on marginal tax rates. The first tax bracket which taxes at 10% ranges from zero dollars to $30,000. The second tax bracket which tax at 25% ranges from 30,001 to $120,000. How much will you pay in total taxes?
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