Most economists doubt that reducing federal tax rates would generate an increase in tax revenues…

Most economists doubt that reducing federal tax rates would generate an increase in tax revenues. Where does this suggest the US economy is on the Laffer curve? However, some argue that this isn’t true in all places, particularly in some US cities. Why might a reduction in the tax rates be more likely to increase revenue at the city, but not at the federal level? 2.

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EC320 Chisesi Assignment 6.pdf
EC320 Chisesi Assignment 6 Chapter 18 questions 1. Most economists doubt that reducing federal tax rates would generate an increase in tax revenues. Where does this suggest the US economy is on the Laffer curve? However, some argue that this isn’t true in all places, particularly in some US cities. Why might a reduction in the tax rates be more likely to increase revenue at the city, but not at the federal level? 2. Let’s see if you really get the idea of decomposing a change in some behavior as a result of a tax, say labor hours worked in this case, into the income and substitution effect. Suppose individuals view their loss of income from a tax as offset by the benefits of public services purchased with the tax revenues. How would their labor supply decisions be affected? (See the example of Sweden in the text). 3. Model an individual as consuming two goods, health care benefits and “all other goods”. Today, employer provided health care benefits are not taxed. If we taxed them, use an indifference curve model to show the impact on the quantity of health care benefits consumed. If you aren’t comfortable drawing it out in Word or some other program, do it on paper and then explain it to me. 4. Interest rates are low now. Some argue that you should save even more now to compensate for that. Using the life-cycle model, would a rational person follow this advice? If so, what does it say about the shape of the individual’s supply curve (of saving)? 5. Page 420 of the text features a discussion regarding human capital and how its acquisition can be impacted by taxes. Explain why equations 18.1 and 18.2 are the same. What are the ways acquisition changes the supply of labor? Chapter 21 essay assignment: Our last tax chapter, chapter 21, looks at issues raised in any serious discussion of tax reform. The debates regarding consumption versus income taxes, and the idea of a wealth tax, are very much alive today. I recently read an article…

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