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  3. suppose that the government imposes a proportional

Suppose that the government imposes a proportional income tax on the representative consumer’s wage income. That...

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Economics

Suppose that the government imposes a proportional income tax onthe representative consumer’s wage income. That is, the consumer’swage income is

w(1-t)(h-l)

where t is the tax rate. What effect does the incometax have on consumption and labour supply? Explain your results interms of income and substitution effects.

Answer & Explanation Solved by verified expert
4.1 Ratings (755 Votes)
AnsAccording to question when the government imposes aproportional tax on wage income the consumers budgetconstraint is now given byC w 1 th l T where t is the tax rate on wage income i provide you a figureAfigure A the budget constraint for t 0 is FGHWhen t 0 the    See Answer
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