Given the choice between a lump- sum tax and an excise tax that raises the same revenue, a consumer:
A)will be hard- pressed to choose one option over the other.
B)will choose the the excise tax.
C)will choose the lump- sum tax.
D)is indifferent between the two.

Question

Quizplus · Accepted Answer

A lump-sum tax is a tax that is a fixed amount, and doesn't depend on the amount of goods or services produced or consumed. An excise tax, on the other hand, is a tax that is levied on a specific good or service. In general, consumers prefer lump-sum taxes to excise taxes, because a lump-sum tax is a more efficient way to raise revenue. With a lump-sum tax, consumers know exactly how much they will have to pay, regardless of their consumption choices. With an excise tax, consumers may be discouraged from purchasing the good or service subject to the tax, which could lead to inefficiencies in the market. Therefore, consumers are likely to choose the lump-sum tax over the excise tax if given the choice.

Given the Choice Between a Lump- Sum Tax and an Excise