Citizens in a given country can belong to either a low income group (earning 40,

Question

Citizens in a given country can belong to either a low income group (earning 40, 000 annually), or a middle income group (earning 80,000 annually), or a high income group (earning 120,000 annually). 30%, 60%, and 10% of citizens belongs to a low income, middle income, and high income groups. Every citizen is supposed to pay 25% of their incomes to the government. Each citizen may decide to pay or to evade the tax. If an evader is nabbed, the law of the country stipulates payment of a line of the amount 50,000. Assume that out of x% people who evade taxes, the government has the capacity to catch one with probability 1 - x. When is the optimal decision for each individual? Is there any complementarity between citizens' actions? Who evades taxes if x = 50%? Can x = 50% be an equilibrium? Analyze the equilibrium tax payment? How many equilibrium exists? Which equilibrium is socially more desirable?

Explanation / Answer

Ans:

Citizen in a given country belong to various income group

1. Low Income - earning 40000 annually , 30%

2. Middle income group – earning 80000 annually , 60%

3 . High income group - earning 120000 annually   , 10 %

Every citizen is pay 25% to their incomes to the government

Fine for evader tax = 50, 000

Capacity to catch one with probability 1- x

2.1 Under complete vulnerability either no appraisals of the probabilities for the event of the distinctive conditions of nature are accessible or the chief needs trust in them. Therefore probabilities are not utilized at the decision of the best alternative. Most of the principles for basic leadership under vulnerability express an alternate level of chief's positive thinking. The occupants of the family unit don't need to be identified with the leader of the family for their profit to be considered part of the family's salary. As families tend to share a comparable monetary setting the utilization of family salary stays among the most generally acknowledged measures of wage. That the extent of a family unit is not usually considered in such measures may contort any examination of variances inside or among the family wage classes and may render direct correlations between quin tiles troublesome or even inconceivable.

2.2

If x= 50 %

1- 50% = 49 % of the population of each income group is evade taxes .

2.3

No x= 50 % is not an equilibrium because there must be variation of population in each income group . so there is not an any equilibrium .

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