I'm dealing with a tricky assignment, and I have no idea of where to begin.
Person 1 lives in Denmark and has a utility function given by,
$$(1) \ \ u(c,l)=c-\frac{\eta}{\eta+1}(24-l)^{\frac{\eta+1}{\eta}}$$
Where $\eta>0$, $c$ is consumption and $l$ is leisure.
The danish government imposes a tax on the person, $t, 0<t<1$ such that his 'post-tax' wage is given by $w=\bar{w}(1-t)$. Tax revenue is given by
$$(2) \ \ T=t\cdot \bar{w}\cdot S(w)$$
where $S(w)$ is the supply of labor and $\bar{w}$ is wage.
First I derived the tax that yields the most tax revenue, $t^*=\frac{1}{(1+\eta)}$.
Here comes the problem.
Suppose that a second person (Person 2) with the same utility function is living in Wales. She is only willing to move to Denmark (for example when a big firm want's to import foreign labor because of qualifications) only when she can get a utility (after tax) that is higher than $\bar{u}$. Suppose that:
$$(3) \ \ \bar{u}>\frac{1}{\eta+1}\left(\frac{\eta}{1+\eta}\frac{\bar{w}}{p}\right)^{\eta+1}$$
I have to show that the tax that is maximizing tax-revenue ($t^*$) is 'too high' for Person 2 to move to Denmark.
I get that I have to show that Person 2's utility is higher when she lives in Wales, than if she lived in Denmark - but how?