There is a 50% income tax in a society with only two individuals.Both individuals have pre-tax incomes of $50,000.In period 1,there is no tax deduction,and Harry gives $5,000 to charity while Sally gives $8,000 to charity.In period 2,the government makes charitable donations tax deductible and Harry gives $6,000 and Sally gives $12,000.The marginal impact of the tax break was ________; the inframarginal impact of the tax break was _________.

Question

Quizplus · Accepted Answer

The marginal impact is the additional amount given due to the tax break: Harry gave $1,000 more and Sally gave $4,000 more, totaling $5,000. The inframarginal impact is the amount that would have been given without the tax break: $5,000 (Harry) + $8,000 (Sally) = $13,000. The total impact is $18,000, so the inframarginal impact is $18,000 - $5,000 = $13,000.

There Is a 50% Income Tax in a Society with Only