Redistributive philosophies and incentives Consider a society comprised of two p

Question

Redistributive philosophies and incentives Consider a society comprised of two people. Nick earns an income of 585,000 peryear and Rosa earns an income of 525,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Nick's income and give the revenue to Rosa. Without any incentive distortion, Nick would retain 563,7 50 and Rosa would end up with 546,250. However, let us assume that since Nick will not receive all the income he earns, he decides to work less and earn an income of only 57 5,000, of which 25% times $75,000 = $18,750 will be owed in taxes. With the redistribution plan, Nick will take home an income of_____________. The 518,750 that Nick pays in taxes will be transferred by the government to Rosa. Let us assume that since Rosa now receives payment from the government, she will not work as many hours and will earn an income from work of only 524,000 instead of her initial 525,000. With the redistribution plan, Rosa'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? Total societal utility will increase if the plan is enacted. The government is not entitled to take money away from one person and give it to another. The plan benefits Rosa, who is the least well off member of society.

Explanation / Answer

Nick will take (75000 -18750) = 56250

Rosa's total income (24000+18750) =42750

With our redistribution total income is (85000+25000) = $111000

After redistribution total income is (56250 +42750) = 99000

So redistribution decrease societies total income.

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