Problem:

Suppose two workers earn labor incomes of $20,000per year in each of three tax accounting periods. One worker saves 20 percent of her labor earnings in each of the first two periods and spends all her savings and accumulated interest in the final period. The other worker never saves any of her labor earnings. The market rate of interest is 10%.

Required

Question 1: Calculate the discounted present value of taxes paid over the three periods for each of the workers under a 15 percent comprehensive income tax.

Note: Provide support for your rationale.