Question 1

Is it possible to design a tax that does all of the following: i)leaves behavior unchanged so that the quantity demanded of goods and services does not change,ii)creates no excess burden,iii)is not regressive,and iv)is welfare enhancing?

Accepted Answer

The answer of Is it possible to design a tax...

Question 2

All taxes impose an excess burden.

Accepted Answer

Not all taxes impose an excess burden. Some taxes, particularly those on perfectly inelastic goods or perfectly elastic supply, can be designed to minimize or avoid excess burden, focusing the tax's impact on revenue generation rather than distorting economic decisions.

Question 3

Suppose the inverse demand curve for good A is given by the equation P_A = 10 - Q_A/10,and the supply curve is perfectly elastic (horizontal)at $1.Good A is presently taxed at $2 per unit.Good B (which is independent of good A)has an inverse demand curve,P_B = 5 - Q_B/20,and is also perfectly elastic at $1.Good B is untaxed. (A)How much tax revenue is collected and what is the excess burden of the $2 tax on A? (B)How much revenue is collected if the tax on good A is reduced to $1 per unit and good B is taxed at $1 per unit? (C)What is the total excess burden of taxing both goods at $1 per unit? (D)Which tax system is preferable from the point of view of economic efficiency?

Accepted Answer

The answer of Suppose the inverse demand curve for good...

Question 4

Suppose you had to design an economic system for a country that had never existed before,like one of the former Soviet Union countries.What criteria would you consider to minimize the excess burden of the system of taxation?

Accepted Answer

The answer of Suppose you had to design an economic...

Question 5

Lump sum taxation is an attractive policy tool.

Accepted Answer

The answer of Lump sum taxation is an attractive policy...

Question 6

Equivalent variation is a method employed to measure excess burden.Comment on why a method such as compensating variation would not be appropriate for this analysis.

Accepted Answer

The answer of Equivalent variation is a method employed to...

Quiz 15: Taxation and Efficiency

Is it possible to design a tax that does all of the following: i)leaves behavior unchanged so that the quantity demanded of goods and services does not change,ii)creates no excess burden,iii)is not regressive,and iv)is welfare enhancing?

All taxes impose an excess burden.

Suppose you had to design an economic system for a country that had never existed before,like one of the former Soviet Union countries.What criteria would you consider to minimize the excess burden of the system of taxation?

Lump sum taxation is an attractive policy tool.

Equivalent variation is a method employed to measure excess burden.Comment on why a method such as compensating variation would not be appropriate for this analysis.