Instr. José-Víctor Ríos-Rull
Apr 10, 2000
Instructions:
Good luck!
In the country with commitment the government can give believable guarantees to the citizens that it will not tax excessively future returns to investments. As a result, citizens undertake those investments. Without commitment, citizens may not undertake productive investments because the government will tax in the future the returns to investments because in the future doing so is non-distortionary. As a result citizens of the country where the government can commit are better off.
Do the graph. If food is on the horizontal axis, the new budget set cuts the horizontal axis on a point have the distance to the origin compared to the bedget set without taxes. It cuts the vertical axis on the same point.
By using the indifference curves implied by the tax on food and by a lump sum tax that collects the same amount.
What is key is that even though a payroll tax acts as a tax on the consumption of all things that are bought, it does not affect leisure. Leisure is therefore not taxed, which means that not all goods are treated symmetrically, so it is not a lump sum tax.
Wealth. The Gini index for example.
Under certain conditions, the timing of taxation is irrelevant. It does not matter whether the government balances its budget every period or whether it runs a deficit today by having low taxes and will have high taxes tomorrow that people will pay with the proceeds of the returns to the savings of todays taxes.
p = 33.3, x = 66.66.
p = 40 (including tax) x = 60
33.33
.055
Charges for government goods or services. Debt financing. Inflation (printing money). Public enterprises such as lotteries. Donations.
True. Workers work the same amount regardless of wages. So now they will work the same. The supply is vertical. The demand is inclined. The vertical difference implied by the tax now ocurrs at the same quantity as before.
True. Past $60,000 the fraction of income payed is decreasing.
False. Whether lump sum taxation is feasible or not has nothing to do with commitment. It has to do with the things that are taxable under the law.
Multiple choice question
D.