Course: Public Economics. This is a problem set that has 3 problems inside. (This is not an essay assignmet.)

4.False
With risk taking, we mean the percentage of wealth invested in the hazardous asset at the outset. Changes in capital income taxes, like any other tax reform, have income and substitution consequences. Because risk-averse investors respond to taxes by raising risk tolerance, the after-tax return distribution of the hazardous asset remains unchanged. while keeping utility expected. However, the loss of tax income has a negative income effect that somewhat compensates the substitution benefit. The positive substitution impact is higher than the income effect under plausible assumptions about risk attitude, meaning that an investor with predicted utility preference will reduce risk-free asset holdings in favour of riskier assets.
5. True
Marginal utility of income closer to zero indicates that there is no rate of change in total utility loss , setting higher marginal income tax does not affect utility loss among high income people.
6. L = ln(C1)+ln(C2)-1/2L2-...