Tax on the Rich

Question:

Some European countries, such as France, imposed a heavy income tax on the rich, up to 70% of their income.

(a)    Can it make the income distribution evener? Explain? (2 marks)

(b)    How does the above affect the post-tax Gini coefficient?  (2 marks)

(c)    Do you think that the above can improve equity in those European countries? Explain. (2 marks)

Answer:

a)

The disposable income of the rich falls by a larger proportion. (1)

The disposable income of the poor remains unchanged. (1)

(b)

The smaller the Gini coefficient, the more even the income distribution. (1)

It gets smaller. (1)

(c)

We cannot conclude because (1)

Equity is a subjective concept, a normative issue. (1)