In 1994, the state of California suffered a devastating earthquake. To help pay for the damages, the state raised its sales tax by one cent per dollar of expenditure on most consumer goods. This state sales tax is an example of what economists call:
A) an ad valorem tax.
B) a specific tax.
C) a neutral tax.
D) a negative tax.
E) none of the above

Question

Quizplus · Accepted Answer

The state sales tax in California is an ad valorem tax, meaning it is a tax that is based on a percentage of the value of the item being taxed. In this case, the tax is one cent per dollar of expenditure, or 1%. A specific tax is a tax that is a fixed amount per unit of the item being taxed, such as a tax of $1 per gallon of gasoline. A neutral tax is a tax that does not influence economic behavior, such as a lump sum tax. A negative tax is a form of income redistribution where the government gives money to individuals or families instead of taxing them.

In 1994, the State of California Suffered a Devastating Earthquake