Consider a society that is trying to decide its tax policy on income as well as on bonuses that individuals receive at work. There is a continuum of individuals in society, indexed by i E [0, 1], where each individual i has a salaried income, y, and a personal bonus bi where bi is drawn from a bonus distribution function F(.) on [0, Do] with an expectation (average) / 1 and a median, in The society must decide on an income tax rate ty E [0, 1] and on a bonus tax rate 4 E [0, 1]. All tax proceeds are redistributed equally to individuals in the form of a transfer 71(ty tb) = tyy tbpd. An individual's total after tax income, h, is given by,
Ii = (1 ty)y (1 t )bi tb)
Summary: This question belongs to political economy and discusses about society that is trying to decide its tax policy on income as well as on bonuses and to find predictions of society.
Total word count: 735
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