4. Redistributive philosophies and incentives
Consider a society consisting of two people. Musashi earns an income of $85,000 per year, and Rina earns an income of $25,000 per year. The government is considering a redistribution plan that would impose a 20% tax on Musashi's income and give the revenue to Rina.
Without any incentive distortion, Musashi would retain $68,000 and Rina would end up with $42,000. However, let us assume that since Musashi will not receive all the income he earns, he decides to work less and earn an income of only $70,000, of which 20%×$70,000=$14,00020%×$70,000=$14,000 will be owed in taxes.
With the redistribution plan, Musashi will take home an income of?
The $14,000 that Musashi pays in taxes will be transferred by the government to Rina. Let us assume that since Rina now receives payment from the government, she will not work as many hours and will earn an income from work of only $23,000 instead of her initial $25,000.
With the redistribution plan, Rina's total income (including the government payment received) is now?
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___total income in this society.
According to the libertarian political philosophy, the government implement this redistribution plan. Why?
A.The plan benefits Rina, who is the least well off member of society.
B.Total societal utility will increase if the plan is enacted.
C.The government is not entitled to take money away from one person and give it to another.