Deck 10: Introduction to Government Finance

Question 1

If horizontal equity is achieved in taxation,

A) vertical equity will also be achieved.
B) individuals of equal economic capacity will pay equal taxes.
C) a flat-rate tax will be used.
D) the tax system will not result in losses in efficiency in markets.

Answer 1

individuals of equal economic capacity will pay equal taxes.

Question 2

The federal government finances only half of its expenditures with taxes.

Answer 2

False

Question 3

The marginal tax rate for a payroll tax is 7 percent on all wages up to $60,000 per year. The marginal tax rate for wages in excess of $60,000 per year is zero. The payroll tax is therefore a regressive tax.

Answer 3

True

Question 4

The user charge for a congestible public good should be zero at all times.

Question 5

Tax evasion would be less of a problem if tax rates were lowered.

Question 6

Horizontal equity is achieved when individuals of the same economic capacity pay the same amount of taxes over a given period.

Question 7

Zero prices for price-excludable government services provide benefits only to the poor.

Question 8

The marginal tax rate will eventually exceed the average tax rate if the tax rate structure is propor?tional.

Question 9

A flat-rate income tax is a proportional tax on an income base.

Question 10

The average tax rate and marginal tax rate are the same under a progressive tax rate structure.

Question 11

The benefit principle argues that the means of financing government goods and services should be linked to the benefits received from those goods and services.

Question 12

Most studies indicate that state-run lotteries are equivalent to a progressive tax on gambling.

Question 13

Government activity requires the reallocation of resources from government to private use.

Question 14

For a proportional tax, the marginal tax rate is always equal to the average tax rate.

Question 15

Tax avoidance is an illegal activity in the United States.

Question 16

A flat income tax i.e. a fixed amount paid by every taxpayer) is an example of a selective tax.

Question 17

According to the benefit principle,

A) taxes should be distributed according to ability to pay.
B) user charges are an ideal source of finance for government goods and services.
C) the progressive income tax represents the ideal way of distributing taxes among citizens.
D) flat-rate taxes are always the best kind.

Question 18

Taxes simultaneously ration and finance government goods and services.

Question 19

The gasoline tax is an example of a general tax on consumption.

Question 20

An increase in marginal tax rates is likely to increase tax evasion.

Question 21

The marginal tax rate will eventually exceed the average tax rate for a:

A) proportional tax.
B) regressive tax.
C) progressive tax.
D) flat-rate tax.

Question 22

Taxes:

A) are voluntary payments to governments.
B) are unlikely to affect market supply and demand.
C) never affect efficiency in the allocation of resources.
D) are compulsory payments associated with certain activities.

Question 23

If the marginal tax rate is 20% under a proportional tax rate structure, the average tax rate:

A) should be 20%.
B) should be above 20%.
C) should be below 20%.
D) cannot be determined.

Question 24

A proportional income tax has an average tax rate that:

A) always is less than the marginal tax rate.
B) always exceeds the marginal tax rate.
C) equals the marginal tax rate at first and then becomes less than the marginal tax rate.
D) always equals the marginal tax rate.

Question 25

Marginal tax rates were reduced in 2001. Other things being equal, this is likely to:

A) increase tax evasion.
B) decrease tax evasion.
C) have no effect on tax evasion.
D) increase tax avoidance.

Question 26

Which of the following countries has the highest average tax rate relative to GDP?

A) Japan
B) Sweden
C) Iceland
D) United Kingdom

Question 27

If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax rate is:

A) 30%.
B) 25%.
C) 42%.
D) not able to be determined.

Question 28

Taxes are likely to affect:

A) market equilibrium.
B) political equilibrium.
C) the distribution of income.
D) all of the above

Question 29

The tax base of a payroll tax is:

A) consumer expenditures.
B) interest income.
C) labor income.
D) both b and c

Question 30

A government prints money to finance its expenditures. As a result,

A) the economy can operate at a point outside its production possibility curve.
B) inflation will occur.
C) consumers will give up private goods to finance the increased government expenditures.
D) both b and c

Question 31

A bridge becomes congested after 100 vehicles per hour use it on any day. To achieve efficiency, a toll:

A) that charges all users of the bridge, no matter how many vehicles use it per hour, should be imposed.
B) on additional users in excess of 100 per hour should be imposed.
C) on all users should be imposed, if more than 100 users per hour are expected.
D) is not required.

Question 32

A tax on the value of real estate holdings is a:

A) selective tax on wealth.
B) general tax on wealth.
C) general tax on income.
D) selective tax on income.

Question 33

Explain why it is difficult to evaluate alternative means of government finance according to a single criterion. What important economic and social variables are likely to be affected by the means of financing government goods and services? Are flat-rate taxes inherently more desirable than taxes with progressive rate structures?

Question 34

A payroll tax taxes a worker's wages at 14 percent until the worker earns $60,000 per year. All labor earnings in excess of $60,000 are not subject to tax. The tax rate structure of the payroll tax is therefore:

A) proportional.
B) progressive.
C) regressive.
D) flat-rate.

Question 35

An excise tax is a:

A) general consumption tax.
B) selective consumption tax.
C) general wealth tax.
D) selective tax on wealth.

Question 36

A 5-percent retail sales tax on all consumer purchases in a state is imposed. The sales tax is:

A) a flat-rate tax.
B) a tax with a regressive rate structure.
C) levied on an income base.
D) all of the above

Question 37

A tax on real estate is a:

A) general wealth tax.
B) general consumption tax.
C) selective wealth tax.
D) selective income tax.

Question 38

Tax avoidance is:

A) a means of tax evasion.
B) a means of decreasing taxes paid by adjusting behavior.
C) a political process explicitly for the reduction of taxation.
D) a means to avoid tax owed.

Question 39

What is an example of a normative criterion that a government must trade-off in its method of taxation?

A) Equity
B) Efficiency
C) Administrative ease
D) all of the above