Tax rebate example in Hal Varian - Is it wrong?

[soumen08]

Hi!
I was studying the slutsky equation Chapter from Varian and I dont know if the tax rebate example is correct. From equation 8.4 and 8.5, he concludes that the original bundle x,y is not affordable. Isnt that the whole point of rebating the tax? If I put x,y (the original bundle) in eqn 8.5, I find it is affordable! That way, the figure demonstrating a pivot around x',y' is also wrong since the pivot should be around x,y. It should make consumers better off! Am I missing something?
Please help me out!

Thanks,
Soumen

[tanudas]

I was studying the same topic today and have the exact same doubt :D
Please help guys !

[hoouin]

the (x,y) bundle can't satisfy eqn 8.5 .putting (x,y) in eqn 8.5 will be like

(p+t)x+y=m+tx'   and tx and tx' cannot be canceled.

you would be thinking why in RHS it is still tx' insted of tx coz  it's written in the paragraph following eqn 8.5 that income and rebate from the gov.t are taken as FIXED(3rd line) while the (x,y) in LHS can be variable.


i hope it fixes ur doubt.

[tanudas]

hey thanks for the explanantion. i have a doubt though. Can you explain what is meant by the line - The
rebate depends on what all consumers do, not what the average consumer
does. In this case, the rebate turns out to be the taxes collected from the
average consumer—but that’s because he is average, not because of any
causal connection ?

also it says that after the increase in tax and the provision of rebate, the original bundle is not affordable. How is this true ? I mean, shouldn't it leave no difference to the consumer's position ?