Question 1

A(n) ________ is most easily shifted.

Accepted Answer

The answer of A(n) ________ is most easily shifted.
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Question 2

The payroll tax for Social Security in the United States is

Accepted Answer

The payroll tax for Social Security in the United States is regressive because it is a flat tax of 6.2% on all income up to a certain amount (as of 2021, the cap is $142,800), which means that low-income earners pay a higher percentage of their income towards the tax than high-income earners.

Question 3

________ occurs when households can alter their behavior and do something to legally avoid paying a tax.

Accepted Answer

Tax shifting occurs when the burden of a tax is passed on from the entity legally responsible for it to another party, often through changes in behavior or pricing strategies. This can happen when households, for example, change their consumption habits to avoid higher taxed goods or services, effectively shifting the tax burden.

Question 4

If demand is unit elastic and the labor supply is ________, the payroll tax is borne mostly by the employee.

Accepted Answer

If the labor supply is very inelastic, it means that workers cannot easily adjust their behavior in response to changes in the payroll tax. Therefore, if demand is unit elastic (meaning that quantity demanded changes by the same percentage as the percentage change in price), any increase in the payroll tax will result in a larger increase in the price of labor (wages), which will be passed on to the employee in the form of lower net wages. Hence, the employee takes on most of the burden of the payroll tax.

Question 5

State and local taxes seem as a group to be mildly ________ and federal taxes seem as a group to be mildly ________.

Accepted Answer

State and local taxes tend to be regressive because they rely heavily on sales taxes and property taxes which can take a larger percentage of income from low-income individuals. Federal taxes are generally progressive due to the progressive income tax system and various tax credits for low-income individuals.

Question 6

The corporation income tax causes

Accepted Answer

The corporation income tax often leads to capital flowing from the corporate sector to the noncorporate sector because the tax burden can make investments in the corporate sector less attractive compared to the noncorporate sector, where the tax treatment might be more favorable.

Question 7

As a result of an increase in the Medicare tax that employers must pay on their employeesʹ wages, employers reduce the starting wage for new employees. This is an example of

Accepted Answer

Tax shifting refers to the way businesses respond to tax changes by shifting the burden of the tax onto someone else, in this case, new employees. The increase in the Medicare tax on employees' wages reduces the amount of money that employers have available to pay their employees. To make up for this, they reduce the starting wage for new employees. This means that the burden of the tax is being shifted from the employer to the employee.

Question 8

Assume that both the corporate and noncorporate sectors are in long-run equilibrium before the imposition of a corporate profits tax. In the short run, the imposition of a corporate profits tax will

Accepted Answer

The imposition of a corporate profits tax will decrease the profits of the corporate sector because they will have to pay the tax. However, it will not change the profits of the noncorporate sector because they do not pay the tax. Therefore, the correct choice is C.

Question 9

In the long run, the corporate profits tax will lead to

Accepted Answer

The answer of In the long run, the corporate profits...

Question 10

The ultimate burden of the corporate profits tax appears to depend on all of the following except

Accepted Answer

The ultimate burden of the corporate profits tax depends on factors that affect how the tax can be shifted or absorbed, such as the relative capital/labor intensity, the substitutability of capital and labor, and the elasticities of demand for products. The tax rate structure of the corporate profits tax itself does not determine the burden's distribution but rather the amount of tax collected.

Question 11

The payroll tax is regressive because

Accepted Answer

The payroll tax is considered regressive because it caps at a certain income level ($118,500 in this context), meaning that individuals earning above this threshold pay no additional payroll tax on the excess income, making the tax a smaller proportion of their total income compared to lower earners.

Question 12

The ultimate distribution of a taxʹs burden is the

Accepted Answer

Tax incidence refers to who ultimately bears the burden of a tax. It is affected by the tax structure (how the tax is designed) but also other factors such as elasticity of demand and supply. The tax base refers to the value or activity that is being taxed, and the tax rate is the percentage of that base that is taxed. While both the tax base and tax rate affect the amount of revenue generated by a tax, they do not determine the ultimate burden of the tax.

Question 13

Empirical studies of labor supply behavior in the United States suggest that the elasticity of labor supply is close to zero and therefore

Accepted Answer

If the elasticity of labor supply is close to zero, it means that changes in wages or taxes do not significantly affect the amount of labor supplied by workers. Therefore, when payroll taxes are imposed, it is unlikely that workers will reduce the number of hours worked in response, and most of the tax burden will fall on them.

Question 14

A payroll tax is imposed on two types of labor: carpenters and laborers. In the short run, the elasticity of labor supply of carpenters is much less elastic than the elasticity of labor supply of laborers. Which of the following is true?

Accepted Answer

The fact that the elasticity of labor supply of carpenters is much less elastic than the elasticity of labor supply of laborers implies that carpenters are less responsive to changes in wages compared to laborers. Therefore, when a payroll tax is imposed, the cost of employment for both carpenters and laborers increases, which leads to a reduction in labor demand. As carpenters are less sensitive to wage changes, their labor demand will decrease less compared to laborers in response to the payroll tax. Therefore, in the short run, carpenters will end up paying a larger share of the payroll tax than laborers.

Question 15

The government imposes a tax on imported wine. As a result, fewer individuals purchase imported wine. This is an example of tax

Accepted Answer

Tax shifting occurs when the burden of a tax is passed on from the entity legally responsible for it to another party, such as consumers. In this case, the tax on imported wine likely raises its price, leading to decreased demand as consumers bear the cost.

Question 16

Arnold Harberger's study on the incidence of the corporate income tax concluded that the burden of the tax is borne

Accepted Answer

According to Arnold Harberger's study, the burden of the corporate income tax is primarily borne by the owners of corporations, proprietorships, and partnerships in rough proportion to profits. In other words, the tax is passed on to the owners of the businesses and affects their profits. This conclusion is in line with the general principle of tax incidence, which suggests that the burden of a tax is ultimately borne by the individuals or groups that cannot easily shift the tax to others. In the case of the corporate income tax, it is difficult for corporations to shift the tax burden entirely onto consumers or workers, as they may face competition from other firms and/or resistance from consumers and workers. Therefore, the tax burden falls mainly on the owners of the businesses that are subject to the tax.

Question 17

If demand is unit elastic and the labor supply is ________, the payroll tax is borne mostly by the employer.

Accepted Answer

The answer of If demand is unit elastic and the...

Question 18

In the long run the corporate profits tax may lead to

Accepted Answer

The answer of In the long run the corporate profits...

Question 19

A household is helped, on the ________ side, when its net profits or wages rise and is helped, on the ________ side when the prices of goods and services decrease.

Accepted Answer

A household is helped on the sources side when its income (net profits or wages) increases, as this means more money is coming in. It is helped on the uses side when the prices of goods and services decrease, as this means the money they have can be used more effectively or stretched further.

Question 20

Firms may react to a payroll tax by

Accepted Answer

The answer of Firms may react to a payroll tax...

Quiz 19: Public Finance: The Economics of Taxation