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People make decisions based on how the decision will change things. If I work an extra \$1000 worth of time, then I have to pay $\$1000 * \text{marginal tax rate}$ in taxes. The average rate is irrelevant to that calculation. It's a little more complicated than that in that the marginal tax rate may change over that \$1000. The only time that the ...


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$$ \frac{\partial\frac{T(Y)}{Y}}{\partial Y}= \frac{T'(Y)}{Y} - \frac{T(Y)}{Y^2} $$ This can only be smaller than 0 if $$ T'(Y) < \frac{T(Y)}{Y} $$ In other words, the marginal tax rate needs to be smaller than the average tax rate. This can't happen because you start with an average tax rate of zero and a positive marginal tax rate. From then on, in ...


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There is nothing to prevent other countries "taking advantage" of an export market's UBI. However, I don't think that that implies a country introducing a UBI would need to increase tariffs, and I have never heard this being advocated. Since UBI hasn't been implemented on a large scale, there is little compelling evidence on what its effects will be, but a ...


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There are sometimes cases where protectionist trade policies are a good thing. (note this is a big debate, so a bit of bias here). Lets look at an example to make it clear... Suppose I'm country A and you are country B. I'm a small country, you are a large one. My country is 100% agriculture based. Your country is completely diverse and strong in all ...


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The marginal tax rate is supposed to reflect incentives for the individual. In order to derive a meaningful metric, the calculation should hence try to reflect the actual decision an individual is facing. An increase in \$1 pay is probably not something people are considering. If, however, someone earning \$10 per hour considers to increase his/her labor ...


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In comments it was clarified that $T(Y) = 0$ and continuity are not assumed. In this case there are several counterexamples, a relatively simple one being $$ T(Y) = \left\{ \begin{array}{ll} 1 + 20\%Y & \text{if } Y \leq 5 \\ 40\% Y & \text{if } Y > 5. \end{array} \right. $$ Here the taxation is progressive, but the average tax rate $T(Y)/Y$ is ...


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In the UK, government spending is 38.5 per cent of GDP. To oversimplify, that means that for every £1 spent on private goods, 63p needs to be raised in taxes. At present, the UK raises a little over a quarter of that from income tax. One of the reasons income tax is a significant component is that it is progressive, unlike other major sources such as VAT ...


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A lump sum tax is a tax which only has an income effect, it has the equivalent effect of reducing the agent's wealth. In particular, it has no substitution effect, it does not incentivise the agent to switch between $c$ and $l$. In your case the agent's optimal choice of $c$ and $l$ is given by: $(c^*,l^*)=\left(\frac{w(1-t)}{1+w(1-t)},\frac{w(1-t)}{1+w(1-t)...


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Presumably the $\$325K$ represents the sale of the equipment. It is positive while the purchase of the equipment was shown as $-\$6,000K$ The question says $\$500K$, but that there has been depreciation down to zero (also shown in the table five times as $\$1200K$) The depreciation has led to lower taxes being paid, so tax at a rate of $35\%$ is due on ...


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A significant difference is who ultimately pays the tax, i.e. its incidence. This is more straightforward in the case of VAT, which is ideally(*) and usually(**) and paid by consumers... which also means the VAT is a regressive tax; some recent historical analyses found that (the introduction of) VAT tends to increase some measures of inequality, but not ...


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There is something called productive consumption. The coal and the iron a steelmill consumes are productive consumption, as steel cannot be produced without consumption of coal and iron. Plus, the bread and cloth workers for the steelmill consume are also productive consumption, as the workers would not be able to work without eating and dressing. ...


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On your assumption "I assume that investing is more useful than consuming for society as a whole, at least in the long run." This is not necessarily true. Imagine if all factories were geared towards investment. There would be a lot of heavy industry, to pour concrete, cast steel and make intricate machinery but all of it would go to build new factories. ...


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The correct answer is that it does not. It goes to zero as tax rate increases to infinity. The reason for that is that the rent derived from land (assuming away any necessary land maintenance) can be thought of as a windfall gain. As a result all incidence of burden from such tax must fall on the holder of the land. Already If the tax is equal or above 100% ...


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Yes, What you are describing is called value capture. There are a variety of forms of the tax, each with their own pros and cons. The general idea is that infrastructure, particularly transport infrastructure, disproportionately benefits parties closest to the line. A good example is happening in Western Sydney in what was semi-rural land. An international ...


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To add to Brythan's question: It is correct that the marginal tax rate is more important for incentives than the average tax rate, as economists regularly (and often rightly so) think about marginal changes to a given situation. There are however shortcomings to this. One standard result in labor/public ecnomics is that labor supply is more responsive on ...


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