12 Jun Problem 5: Optimal Taxation with MigrationConsider
Problem 5: Optimal Taxation with MigrationConsider an economy with two sectors H (high-tech) and L (low-tech) and twoindividuals 1 and 2. Workers in sector H earn an income level of 10 whereas thoseworking in sector L earn an income level of 6 (labor supply is assumed to be inelastic).Type 2 (the high skilled guy) can work in both sectors whereas type 1 (the low skilledtype) can only work in sector L. Both types derive utility from income and suffer nodisutility from work.The government is considering levying a system of sector-specific lump-sumtaxes/transfers on redistributive grounds.Let TH and TL denote, respectively, the taxes (transfers, if negative) levied on sectors Hand L (the after-tax income in sector H is thus given by 10- TH, whereas that in sector Lis given by 6- TL). The government is seeking to maximize the utility of the least welloff guy, type 1, and is not allowed to run into a fiscal deficit.a) Formulate the government constrained optimization problem. You should specifythe objective function, the revenue constraint and the incentive constraint associatedwith type 2.b) Solve for the optimal lump-sum taxes/transfers. [Hint: you first need to show whichconstraints are binding (satisfied as equality) in the optimal solution for thegovernment problem].c) Now suppose that type 2 can migrate to another country where her (after-tax) utilitylevel would be given by 0 Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline. Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax. We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers. To make an Order you only need to click on “Order Now” and we will
direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline. All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.
About Writedemy
How It Works
Are there Discounts?
Hire a tutor today CLICK HERE to make your first order