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Country of Marxland - Income Tax and Social Insurance System

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The country of Marxland has the following income tax and social insurance system. Each citizen's income is taxed at an average tax rate of 100%. A social insurance system then provides transfers to each citizen such that each citizen's after-tax income is exactly equal. That is, each citizen gets (through a government transfer payment) an equal share of the income tax revenue. What is the incentive for one individual citizen to work and earn income? What will the total tax revenue in Marxland be? What will be the after-tax income (including the transfer payment) for each citizen? Do you think such a tax system that creates perfect equality will work?

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The expert examines the income tax and social insurance systems for the Country of Marxland.

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There will be no incentive for an individual to work and earn income in such a systemt because -

- whatever income one earns will be taken away by the government (in form of tax) and the net earning (from ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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