Public Economics: Taxation
Problem Set 2
Carleton University, 2015 Fall
Till Gross
For this problem set, you can work with your classmates, but everybody should hand in their own
copy. Please indicate on your copy who you are working with. I recommend to start working on it
on your own and then compare results with your classmates. When you derive your answers, please
make clear what the answer path is supposed to be.
This assignment is due on November
6
th
.
1 Welfare Losses and Tax Incidence
There is a small open economy with two types of agents, high-skilled and low-skilled. The utility
function is type-independent and of the form
U
(
c;`
) =
c
`