A lump-sum tax
A)is most frequently used to tax real property.
B)does not distort incentives.
C)distorts incentives more than any other type of tax.
D)is the most fair tax.

Question

Quizplus · Accepted Answer

A lump-sum tax is a fixed amount of tax that every individual or household must pay, regardless of their income or consumption. This type of tax does not distort incentives because it does not affect the relative prices of goods or services. Everyone faces the same tax burden, so there is no incentive to change behavior to avoid the tax. Therefore, option B is the correct choice. Option A is incorrect because a lump-sum tax is not typically used to tax real property. Option C is incorrect because a lump-sum tax distorts incentives less than other types of taxes. Finally, option D is incorrect because the most fair tax is subjective and depends on individual beliefs about what constitutes fairness.

A Lump-Sum Tax