Using the same assumption as above about a negative income tax system, if a person who was earning no income takes a job paying an annual salary of €15,000, how much better off will that person be after taking income tax into account?

Question

Quizplus · Accepted Answer

If the negative income tax rate is set at 75%, the person who was earning no income would receive a payment of €11,250 (75% of €15,000) from the government. After taking income tax into account, the person's net income would be €15,000 minus the income tax rate, which we don't have information about in this question. Therefore, we can only assume that the person would be €11,250 better off by taking the job.

Using the Same Assumption as Above About a Negative Income