util_equalizer: Calculating distance between utility at tangency and at notch/kink point
Description
Ability (n) and elasticity (e) determine an agent's earnings and utility. This
function determines the tangency point of the agent's utility with the budget
line and returns the distance between the utility of earning at that point
and the utility of earning at the notch/kink point. This function is mostly
used to find the marginal buncher.
Usage
util_equalizer(n, elas, t1, t2, Tax, zstar)
Arguments
n
Ability of person (earnings with zero tax)
elas
elasticity of earnings w.r.t. net-of-tax rate
t1
Tax rate before notch/kink
t2
Tax rate after notch/kink
Tax
height of notch (zero for pure kink)
zstar
place of notch/kink (critical earning point)
Value
Absolute value of utility at tangency minus utility at kink/notch
point.