Sep 28, 2017 term paper 2

(STERN 1976) THE NUMERICAL ANALYSIS OF INCOME TAXATION HAS OFTEN ASSUMED THAT THE SKILL…

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(Stern 1976) The numerical analysis of income taxation has often assumed that the skill distribution is identical to the income distribution. This need not be the case. Assume that the utility function is defined as

a. Provide an interpretation of this utility function.

b. Assume that the skill level of all consumers is strictly positive. What will be the observed distribution of income?

c. Will this distribution be identical to the skill distribution?

d. Comment on the practice of assuming that the income and skill distributions are identical.


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