Question 1

Suppose that Amy and George have the same income. George has no children. Amy has two children, both of which attend a state-funded school. When Amy's children get sick their health care receives a government subsidy. George has private health insurance. According to the benefits principle:

Accepted Answer

A)   Amy should pay more in taxes than George
B)   George should pay more in taxes than Amy
C)   Amy and George should pay the same amount in taxes
D)   the education system should receive more government fundingE) All of the above
F) None of the above A

Question 2

Describe the ability-to-pay principle of taxation. Use an example to demonstrate the difference between horizontal and vertical equity.

Accepted Answer

The ability-to-pay principle states that...

Question 3

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Accepted Answer

A)   the wealthy place a greater dollar value on anti-poverty programs than other classes of taxpayers
B)   anti-poverty programs can be considered public goods
C)   wealthy taxpayers received some personal benefit from anti-poverty programs
D)   all of the above are trueE) B) and C)
F) A) and D)

Question 4

The marginal tax rate is the appropriate measure of the financial sacrifice made by taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

When taxes are justified on the basis that taxpayers receive specific government services, the tax:

Accepted Answer

A)   is considered horizontally equitable
B)   burden is minimised
C)   satisfies the benefits principle
D)   is considered vertically equitableE) C) and D)
F) A) and D)

Question 6

If tax laws become simplified then:

Accepted Answer

A)   the administrative burden of taxes is decreased
B)   compliance costs are most likely to increase
C)   the government always collects less in tax revenue
D)   the amount of tax revenue lost to tax evasion always increasesE) None of the above
F) B) and D)

Question 7

Taxes create deadweight losses because they distort incentives.

Accepted Answer

A) True 
 B)False

Question 8

Mark, Danny, Kristin and Ruthie all love to ski at the local ski resort on weekends. Mark is the most avid skier and places a value of $85 on his weekend skiing. Danny, Kristin and Ruthie place values of $75, $65 and $40, respectively, on their weekend skiing experience. Assume that the price of a weekend ski pass is $38. Further assume that this price reflects the actual unit cost of providing a weekend of skiing.
-According to the information provided, the amount of surplus value that accrues to Mark, Danny, Kristin and Ruthie from their weekend skiing is:

Accepted Answer

A)   $265
B)   $140
C)   $113
D)   $105E) A) and C)
F) All of the above

Question 9

Many economists have suggested that workers and consumers bear much of the burden of company income tax. In the light of this suggestion, explain why the company income tax is so popular among voters. How does the 'flypaper theory' of tax incidence relate to the company income tax?

Accepted Answer

The company income tax is probably popul...

Question 10

Which of the following is a cost of taxes to the taxpayer?

Accepted Answer

A)   the tax itself
B)   deadweight losses
C)   administrative burdens
D)   all of the aboveE) All of the above
F) A) and B)

Question 11

In order to construct a more complete picture of the economic burden of government across income classes, economists usually:

Accepted Answer

A)   include both tax payments as well as transfer payments received
B)   focus only on the tax payments of wealthy tax payers
C)   limit their analysis to taxes based on the ability-to-pay principle
D)   focus their analysis on issues of tax efficiencyE) B) and D)
F) None of the above

Question 12

A poorly designed tax policy tends to be accompanied by which of the following costs?

Accepted Answer

A)   the transfer of money from the government to the taxpayer
B)   marginal rates
C)   large administrative costs
D)   equity penaltiesE) All of the above
F) B) and C) C

Question 13

There is little disagreement about what constitutes tax equity.

Accepted Answer

A) True 
 B)False

Question 14

Lump-sum taxes are rarely used in the real world because:

Accepted Answer

A)   lump-sum taxes have low administrative burdens but high deadweight losses
B)   lump-sum taxes have low deadweight losses but high administrative burdens
C)   poor taxpayers must pay the same level of tax as rich taxpayers
D)   lump-sum taxes have both high deadweight losses and high administrative burdensE) All of the above
F) A) and B) C

Question 15

If your income is $60 000 and your income tax liability is $15 000, your:

Accepted Answer

A)   lump-sum tax rate is 4 per cent
B)   proportional tax rate is 4 per cent
C)   average tax rate is 25 per cent
D)   marginal tax rate is 25 per centE) A) and D)
F) B) and D)

Question 16

There is little disagreement among people about tax policy because most people attach the same weights to the goals of equity and efficiency.

Accepted Answer

A) True 
 B)False

Question 17

The marginal tax rate is the extra taxes paid on an additional dollar of income.

Accepted Answer

A) True 
 B)False

Question 18

Why might a tax on luxury yachts that are purchased only by the wealthy fail to satisfy the condition of vertical equity?

Accepted Answer

Buyers can easily su...

Question 19

'A $1000 tax paid by a poor person may be a larger sacrifice than a $10 000 tax paid by a wealthy person'. This is an argument based on:

Accepted Answer

A)   the horizontal equity principle
B)   the benefits principle
C)   a regressive tax argument
D)   the ability-to-pay principleE) B) and C)
F) None of the above

Question 20

Policymakers consider two main objectives when designing a taxation system:

Accepted Answer

A)   revenue and debt reduction
B)   equity and efficiency
C)   revenue and expenditures
D)   expenditures and efficiencyE) A) and C)
F) None of the above

Exam 12: The Design of the Tax System

Suppose that Amy and George have the same income. George has no children. Amy has two children, both of which attend a state-funded school. When Amy's children get sick their health care receives a government subsidy. George has private health insurance. According to the benefits principle:

Correct Answer
verified
A

Describe the ability-to-pay principle of taxation. Use an example to demonstrate the difference between horizontal and vertical equity.

Correct Answer
verified
The ability-to-pay principle states that...
View Answer

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Correct Answer
verified

The marginal tax rate is the appropriate measure of the financial sacrifice made by taxpayers.

Correct Answer
verified

When taxes are justified on the basis that taxpayers receive specific government services, the tax:

Correct Answer
verified

If tax laws become simplified then:

Correct Answer
verified

Taxes create deadweight losses because they distort incentives.

Correct Answer
verified

Correct Answer
verified

Many economists have suggested that workers and consumers bear much of the burden of company income tax. In the light of this suggestion, explain why the company income tax is so popular among voters. How does the 'flypaper theory' of tax incidence relate to the company income tax?

Correct Answer
verified
The company income tax is probably popul...
View Answer

Which of the following is a cost of taxes to the taxpayer?

Correct Answer
verified

In order to construct a more complete picture of the economic burden of government across income classes, economists usually:

Correct Answer
verified

A poorly designed tax policy tends to be accompanied by which of the following costs?

Correct Answer
verified
C

There is little disagreement about what constitutes tax equity.

Correct Answer
verified

Lump-sum taxes are rarely used in the real world because:

Correct Answer
verified
C

If your income is $60 000 and your income tax liability is $15 000, your:

Correct Answer
verified

There is little disagreement among people about tax policy because most people attach the same weights to the goals of equity and efficiency.

Correct Answer
verified

The marginal tax rate is the extra taxes paid on an additional dollar of income.

Correct Answer
verified

Why might a tax on luxury yachts that are purchased only by the wealthy fail to satisfy the condition of vertical equity?

Correct Answer
verified
Buyers can easily su...
View Answer

'A $1000 tax paid by a poor person may be a larger sacrifice than a $10 000 tax paid by a wealthy person'. This is an argument based on:

Correct Answer
verified

Policymakers consider two main objectives when designing a taxation system:

Correct Answer
verified

Exam 12: The Design of the Tax System

Suppose that Amy and George have the same income. George has no children. Amy has two children, both of which attend a state-funded school. When Amy's children get sick their health care receives a government subsidy. George has private health insurance. According to the benefits principle:

Correct AnswerverifiedA

Describe the ability-to-pay principle of taxation. Use an example to demonstrate the difference between horizontal and vertical equity.

Correct AnswerverifiedThe ability-to-pay principle states that...View AnswerShow Answer

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Correct AnswerverifiedShow Answer

The marginal tax rate is the appropriate measure of the financial sacrifice made by taxpayers.

Correct AnswerverifiedShow Answer

When taxes are justified on the basis that taxpayers receive specific government services, the tax:

Correct AnswerverifiedShow Answer

If tax laws become simplified then:

Correct AnswerverifiedShow Answer

Taxes create deadweight losses because they distort incentives.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Many economists have suggested that workers and consumers bear much of the burden of company income tax. In the light of this suggestion, explain why the company income tax is so popular among voters. How does the 'flypaper theory' of tax incidence relate to the company income tax?

Correct AnswerverifiedThe company income tax is probably popul...View AnswerShow Answer

Which of the following is a cost of taxes to the taxpayer?

Correct AnswerverifiedShow Answer

In order to construct a more complete picture of the economic burden of government across income classes, economists usually:

Correct AnswerverifiedShow Answer

A poorly designed tax policy tends to be accompanied by which of the following costs?

Correct AnswerverifiedC

There is little disagreement about what constitutes tax equity.

Correct AnswerverifiedShow Answer

Lump-sum taxes are rarely used in the real world because:

Correct AnswerverifiedC

If your income is $60 000 and your income tax liability is $15 000, your:

Correct AnswerverifiedShow Answer

There is little disagreement among people about tax policy because most people attach the same weights to the goals of equity and efficiency.

Correct AnswerverifiedShow Answer

The marginal tax rate is the extra taxes paid on an additional dollar of income.

Correct AnswerverifiedShow Answer

Why might a tax on luxury yachts that are purchased only by the wealthy fail to satisfy the condition of vertical equity?

Correct AnswerverifiedBuyers can easily su...View AnswerShow Answer

'A $1000 tax paid by a poor person may be a larger sacrifice than a $10 000 tax paid by a wealthy person'. This is an argument based on:

Correct AnswerverifiedShow Answer

Policymakers consider two main objectives when designing a taxation system:

Correct AnswerverifiedShow Answer

Correct Answer
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A

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The ability-to-pay principle states that...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The company income tax is probably popul...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Buyers can easily su...
View Answer

Correct Answer
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Correct Answer
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