Redistributive philosophies and incentives Consider a society comprised of two p
ID: 1201351 • Letter: R
Question
Redistributive philosophies and incentives Consider a society comprised of two people. Van earns an income of $90,000 per year and Amy earns an income of $35,000 per year. The government is considering a redistribution plan that would impose a 20% tax on Van's income and give the revenue to Amy. Without any incentive distortion, Van would retain $72,000 and Amy would end up with $53,000. However, let us assume that since Van will not receive all the income he earns, he decides to work less and earn an income of only $80,000, of which 20% times $80,000=$16,000 will be owed in taxes. With the redistribution plan, Van will take home an income of. The $16,000 that Van pays in taxes will be transferred by the government to Amy. Let us assume that since Amy now receives payment from the government, she will not work as many hours and will earn an income from work of only $34,000 instead of her initial $35,000. With the redistribution plan, Amy's total income (including the government received) is now. Without a redistribution plan, total income in this society is. After the redistribution plan is implemented, total income in this society is. Therefore, the redistribution plan total income in this society. According to the libertarian political philosophy, the government implement this redistribution plan. Why? The government is not entitled to take money away from one give it to another. The plan benefits Amy, who is the least well off member of society. Total societal utility will increase if the plan is enacted.Explanation / Answer
With the redistribution plan , van will take home an income of = $ 64,000
With the redistribution plan , Amy's total income is now ( including the government received) = $ 50,000
Without the redistribution plan, the total income in the sociery is = $ 125,000
After the redistribution plan is implemented , the total income in the society = $ 114,000
Therefore the redistribution plan reduces the total income in the society .
According to Libertarian political philosophy , the government should implement this redistribution plan because
Total social utility will increase if the plan is enacted.
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