Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = ln(C) + In(1) that he or she maximises subject to a constraint: C = w(1 – t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C +G=A(h − 1)¹/² Assume that h = 1, A = 1 and that the government has a balanced budget. (c) Either analytically or from your Laffer curve plot, find the value of t that maximizes tax revenue.
Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = ln(C) + In(1) that he or she maximises subject to a constraint: C = w(1 – t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C +G=A(h − 1)¹/² Assume that h = 1, A = 1 and that the government has a balanced budget. (c) Either analytically or from your Laffer curve plot, find the value of t that maximizes tax revenue.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 5SQ
Related questions
Question
Transcribed Image Text:Illustrate general equilibrium and the Laffer curve in the context of a repre-
sentative consumer with a utility function:
U(C,1) = In(C) + In(1)
that he or she maximises subject to a constraint:
C = w(1 – t)(h – 1) + a
where
w, h,1, C, t and T are wages, hours of time available, leisure, consumption, tax rate,
and dividend income. The production function for this economy is given by
Y = C+G = A(h – 1)!/2
Assume that h = 1, A = 1 and that the government has a balanced budget.
(c) Either analytically or from your Laffer curve plot, find the value of t that maximizes
tax revenue.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 15 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning