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Earned Income Tax Credit 25 points Carla has a wage of $15 per hour and 2000

Earned Income Tax Credit (25 points). Carla has a wage of $15 per hour and 2,000 hours of time to spend on labor and leisure. The government is considering implementing the following EITC schedule. • Those earning less than $5,000 get a tax credit equal to 50% of her income. • Those earning between $5,000 and $10,000 get a $2,500 tax credit. . For those earning between $10,000 and $20,000, the tax credit phases out at a 25% rate. • Those earning over $20,000 get no tax credit. Carla can qualify for the EITC if it is implemented. a) Graph the EITC schedule. (Earned income on the horizontal axis and tax credit on the vertical axis). b) Graph Carla's budget constraint without any EITC. (Leisure on the horizontal axis consumption on the vertical axis). c) Graph Carla's budget constraint with the EITC. Make sure to label any important points and slopes. a) Sunpose that before the BITC is implemented, Carla works 1,500 hours. How might Carla change her labor supply after the EITC is implemented? Show this on the graph. A policymaker is worried about moral hazard from this EITC. What could the gov- ernment do to the BITC rules in an attempt to reduce moral hazard?

Feb 01 2020 View more View Less

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