Question

Consider a society comprised of two people. Gilberto earns an income of $90,000 per year and Juanita earns an income of $35,000 per year. The government is considering a redistribution plan that would impose a 20% tax on Gilberto's income and give the revenue to Juanita. Without any incentive distortion, Gilberto would retain $72,000 and Juanita would end up with $53,000. However, let us assume that since Gilberto will not receive all the income he earns, he decides to work less and earn an income of only $80,000, of which 20%×$80,000=$16,000 will be owed in taxes.

1. With the redistribution plan, Gilberto will take home an income of $__________

The $16,000 that Gilberto pays in taxes will be transferred by the government to Juanita. Let us assume that since Juanita now receives payment from the government, she will not work as many hours and will earn an income from work of only $34,000 instead of her initial $35,000.

2. With the redistribution plan, Juanita's total income (including the government payment received) is now $_________

3. Without a redistribution plan, total income in this society is $________. After the redistribution plan is implemented, total income in this society is $________. Therefore, the redistribution plan (decreases/increases) total income in this society.

4. According to the libertarian political philosophy, the government (should/should not) implement this redistribution plan. Why?

a) Total societal utility will increase if the plan is enacted

b) The plan benefits Juanita, who is the least well off member of society

c) The government is not entitled to take money away from one person and give it to another

[I promise I'll rate your answer]

Answer 1

1) with the redistribution plan gilberto will take home income =$(80000-16000)

= $64000

2) with the redistribution plan,Juanita's total income= $34000+ 16000

= $ 50000

3) Without a redistribution plan, total income in this society is $_125000 (90000+35000). After the redistribution plan is implemented, total income in this society is $ 114000 64000 + 50000). Therefore, the redistribution plan decreases the total income in this society.

According to the libertarian political philosophy, the government should not implement this redistribution plan due to option (c) The government is not entitled to take money away from one person and give it to another