One proposal for reforming the welfare system is to create a negative income tax. Under the negative income tax, each person is entitled to a grant of G dollars per month. For every dollar the person earns, the grant is reduced by t dollars. a. Suppose G = 200 and t = 0.40. Consider an individual whose hourly wage = $10. There are 30 days in a month, so the total allotment of T = 720. Sketch the budget constraint before and after the introduction of the negative income tax. b. Would people work more or less with the implementation of this system? c. What if t = 100%? Explain!
One proposal for reforming the welfare system is to create a negative income tax. Under the negative income tax, each person is entitled to a grant of G dollars per month. For every dollar the person earns, the grant is reduced by t dollars. a. Suppose G = 200 and t = 0.40. Consider an individual whose hourly wage = $10. There are 30 days in a month, so the total allotment of T = 720. Sketch the budget constraint before and after the introduction of the negative income tax. b. Would people work more or less with the implementation of this system? c. What if t = 100%? Explain!
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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One proposal for reforming the welfare system is to create a negative income tax. Under the negative income tax, each person is entitled to a grant of G dollars per
month. For every dollar the person earns, the grant is reduced by t dollars.
a. Suppose G = 200 and t = 0.40. Consider an individual whose hourly wage = $10. There are 30 days in a month, so the total allotment of T = 720. Sketch the budget
constraint before and after the introduction of the negative income tax.
b. Would people work more or less with the implementation of this system?
c. What if t = 100%? Explain!
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