revenue after imposition of the tax?
b. What is the direct burden of this tax on each island?
c. What is the excess burden of the tax on each island?
d. Is the tax more allocatively efficient on one island than
another? How do you explain this?
13. The negative income tax has been proposed as a means of
increasing both the efficiency and the equity of Canada’s tax
system (see Applying Economic Concepts 18-1 ). The most basic
NIT can be described by two variables: the guaranteed annual
income and the marginal tax rate. Suppose the guaranteed annual
income is $8000 and the marginal tax rate on every dollar earned
35 percent. With this NIT, after-tax income is given by
a. On a scale diagram with after-tax income on the vertical
axis and earned income on the horizontal axis, draw the
NIT relationship between earned income and after-tax
income.
b. What is the level of income at which taxes paid on earned
income exactly equal the guaranteed annual income?
c. The average tax rate is equal to total net taxes paid
divided by earned income. Provide an algebraic
expression for the average tax rate.
d. On a scale diagram with earned income on the horizontal
axis and tax rates on the vertical axis, plot the averageAfter-tax income = 8000 +( 1 −0.35)
= ×(Earned income)