Consumption Tax Assignment | Homework For You

1. Suppose that the federal authorities taxed consumption. To be specific, suppose now now we have a two-period model. An individual earns labor income Y0 =$100okay at time zero, and earns no labor income at time

1. The individual may eat or save that income. Monetary financial savings develop at value r=.03. For every dollar of consumption, the individual pays the tax value τ=.30 to the federal authorities.

a. Graph the two-period value vary constraint for consumption. What is the slope? Is that this tax distortionary?

b. The federal authorities modifies the consumption tax significantly so that the first $20okay of consumption in each interval is tax free. Now graph the worth vary constraint.

2. Declare: “The Mortgage Curiosity Tax Deduction is a regressive protection. A easier, greater protection that might receive the similar goals generally is a home possession tax credit score rating that applies equally to all homeowners regardless of income or the value of the home.” In a mini-essay (300 phrases) state whether or not or not you agree or disagree with that declare and make clear your reasoning.

three. An organization produces output with a market price of $200 per unit. The marginal product of capital is 1/(2K), the place Okay is fashions of capital, with each unit assumed to cost $1. (So after we talk about capital on this draw back, fashions and $ price are equal.) The life span of the capital is 5 years, implying the straight line depreciation value δ=.2. The financing value of capital is ρ=.05.

a. If depreciation and financing costs mustn’t included in accounting costs, what is the optimum stage of capital for the company?

b. If the corporate tax is 35%, what is the optimum stage of capital?

c. If depreciation at a value δ=.2 is included in accounting costs, what is the optimum stage of capital? [Hint: remember to calculate the present value of the deduction. Use .05 for the discount rate.]

d. For c., what is the environment friendly firm tax value?

e. The company goes to borrow the money for its capital purchases. The curiosity paid on the debt may very well be added to accounting costs. Suppose it appears that evidently the present price of this expense is .10 for every dollar of capital purchased. What is the optimum stage of capital now?

f. For e., what is the environment friendly firm tax value? Economics homework help