Figure 25: Different tax regimes 1988 ($1000)
(H) Holland, (U) US-alike
Exemption
Heterogeneous income
The nonproportional tax clearly becomes important when incomes differ, i.e. labour is heterogeneous in terms of productivity, labour costs and income. Lower income earners are affected disproportionally by the exemption level, not merely in terms of the income distribution but also in terms of their competitive position versus higher earners.
In Book III, equation (13.1a) already shows how the minimum wage consists of two elements. For above tax function:
Analytically solving for the minimum wage gives, due to the nonlinear curvature, two solutions for M[B, r, x, c]: