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within
a generation?
b.
What policies might the government pursue to
increase economic mobility
across
generations?
c.
Do you think we should reduce spending on
current welfare programs in order to increase
spending on programs that enhance economic
mobility? What are some of the advantages and
disadvantages of doing so?
5. Consider two communities. In one community, ten
families have incomes of $100 each and ten families
have incomes of $20 each. In the other community, ten
families have incomes of $200 each and ten families
have incomes of $22 each.
a.
In which community is the distribution of income
more unequal? In which community is the problem
of poverty likely to be worse?
b.
Which distribution of income would Rawls prefer?
Explain.
c.
Which distribution of income do you prefer?
Explain.
6. The chapter uses the analogy of a “leaky bucket” to
explain one constraint on the redistribution of income.
a.
What elements of the U.S. system for redistributing
income create the leaks in the bucket? Be specific.
b.
Do you think that Republicans or Democrats
generally believe that the bucket used for
redistributing income is more leaky? How does that
belief affect their views about the amount of income
redistribution that the government should
undertake?
7. Suppose there are two possible income distributions in a
society of ten people. In the first distribution, nine people
would have incomes of $30,000 and one person would
have an income of $10,000. In the second distribution, all
ten people would have incomes of $25,000.
a.
If the society had the first income distribution, what
would be the utilitarian argument for redistributing
income?
b.
Which income distribution would Rawls consider
more equitable? Explain.
c.
Which income distribution would Nozick consider
more equitable? Explain.
8. The poverty rate would be substantially lower if the
market value of in-kind transfers were added to family
income. The government spends more money on
Medicaid than on any other in-kind transfer, with
expenditures per recipient family amounting to roughly
$5,000 annually.
a.
If the government gave each recipient family a
check for this amount instead of enrolling them in
the Medicaid program, do you think that most of
these families would spend that much to purchase
health insurance? (Recall that the poverty line is
below $15,000 for a family of four.) Why?
b.
How does your answer to part (a) affect your view
about whether we should determine the poverty
rate by valuing in-kind transfers at the price the
government pays for them? Explain.
c.
How does your answer to part (a) affect your view
about whether we should provide assistance to the
poor in the form of cash transfers or in-kind
transfers? Explain.
9. Suppose that a family’s tax liability equaled its income
multiplied by one-half, minus $10,000. Under this
system, some families would pay taxes to the
government, and some families would receive money
from the government through a “negative income tax.”
a.
Consider families with pre-tax incomes of $0,
$10,000, $20,000, $30,000, and $40,000. Make a table
showing pre-tax income, taxes paid to the
government or money received from the
government, and after-tax income for each family.
b.
What is the marginal tax rate in this system? (See
Chapter 12 if you need to review the definition of
marginal tax rate.) What is the maximum amount of
income at which a family
receives
money from the
government?
c.
Now suppose that the tax schedule is changed, so
that a family’s tax liability equals its income
multiplied by one-quarter, minus $10,000. What is
the marginal tax rate in this new system? What is
the maximum amount of income at which a family
receives money from the government?
d.
What is the main advantage of each of the tax
schedules discussed here?
10. John and Jeremy are utilitarians. John believes that labor
supply is highly elastic, whereas Jeremy believes that
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PA R T S I X
T H E E C O N O M I C S O F L A B O R M A R K E T S
labor supply is quite inelastic. How do you suppose
their views about income redistribution differ?
11. Do you agree or disagree with each of the following
statements? What do your views imply for public
policies, such as taxes on inheritance?
a.
“Every parent has the right to work hard and save
in order to give his or her children a better life.”
b.
“No child should be disadvantaged by the sloth or
bad luck of his or her parents.”
I N T H I S C H A P T E R
Y O U W I L L . . .
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