Question 1

Suppose an income tax is levied in the following way: All individuals pay 10 percent of their income up to an income of $30 000. On all income above $30 000, individuals pay 20 percent of their income. Such a tax is

Accepted Answer

This income tax is considered progressive because the percentage of income paid in taxes increases as income increases. Those with higher incomes will pay a higher percentage of their income in taxes compared to those with lower incomes.

Question 2

In Canada, public primary and secondary education

Accepted Answer

Public primary and secondary education in Canada are primarily funded by provincial governments, but they are managed by locally elected school boards. This allows for some level of local control and decision-making, but ultimately the funding and standards are set at the provincial level.

Question 3

The excess burden of a tax

Accepted Answer

The excess burden of a tax refers to the deadweight loss created by the tax. It is the loss of economic efficiency that occurs when the tax system distorts economic incentives, resulting in reduced production and consumption in the economy. The excess burden of a tax is not the same as the incidence or distribution of a tax, which refers to who actually pays the tax.

Question 4

The figure below shows a simplified version of the current Canadian federal income- tax system. The marginal income- tax rates for the four ranges of income are 15 percent, 22 percent, 26 percent, and 29 percent, respectively.  FIGURE 18- 2
-Refer to Figure 18- 2. An individual with a taxable income of $39 500 will pay in income taxes.

Accepted Answer

First, we need to find out which tax bracket the taxable income of $39,500 falls into. From the chart, we can see that it falls into the third tax bracket, which has a marginal tax rate of 26%.

To calculate the amount of income tax paid, we need to calculate the tax for each tax bracket below the current one and add them up.

For the first tax bracket up to $47,630, the tax paid is 15% x $47,630 = $7,144.50.

For the second tax bracket up to $95,259, the tax paid is 22% x ($39,500 - $47,630) = 22% x (-$8,130) = -$1,788.60 (since the income falls below this bracket, we subtract the amount they would have owed if they had made it into this bracket from what they owe in the current bracket).

For the third tax bracket up to $147,667, the tax paid is 26% x ($39,500 - $95,259) = 26% x (-$55,759) = -$14,510.34.

Finally, for the fourth tax bracket above $147,667, the tax paid is 29% x $0 = $0.

Adding up the tax owed in each bracket, we get $7,144.50 - $1,788.60 - $14,510.34 + $0 = $5925.56, which we round to the nearest dollar to get an answer of $5925.

Therefore, the correct answer is D) $5925.

Question 5

FIGURE 18- 3
-Refer to Figure 18- 3. Suppose that supply is perfectly elastic and the price of this good is initially
P1. If an excise tax raises the price from P1 to P2, the direct burden of the tax is

Accepted Answer

When supply is perfectly elastic, the entire burden of the tax falls on consumers. The direct burden of the tax is represented by the area between the initial price P1 and the new price P2, which is the area P1FBP2.

Question 6

The excess burden of an excise tax

Accepted Answer

The excess burden of an excise tax refers to the deadweight loss created by the tax. This loss occurs when the tax causes a distortion in the market that results in a reduction in total surplus. Therefore, choice D is the correct answer.

Question 7

The various provincial sales taxes are mildly regressive because

Accepted Answer

Provincial sales taxes are typically uniform across income levels, meaning that individuals or households with lower income will spend a larger proportion of their income on taxable goods than individuals with higher income. This makes the tax mildly regressive, as it places a greater burden on lower-income households than on wealthier ones.

Question 8

FIGURE 18- 1
-Refer to Figure 18- 1. A lump- sum tax is illustrated by curve(s)

Accepted Answer

The answer of  FIGURE 18- 1
-Refer to Figure 18-...

Question 9

The diagram below shows supply and demand diagrams (S and D) for some product. The government then imposes an excise tax. The new supply curve is ST.  FIGURE 18- 4
-Refer to Figure 18- 4. What is the dollar value of the direct burden of this tax?

Accepted Answer

The direct burden of the tax is equal to the difference between the new equilibrium price with the tax (P2) and the old equilibrium price without the tax (P1), multiplied by the quantity (Q). In this case, the difference in price is $6 ($24 - $18), and the quantity is 30. Therefore, the direct burden of the tax is $180 (6 x 30).

Question 10

In 2008, tax revenues collected by all levels of government amounted to approximately what proportion of Canada's Gross Domestic Product (GDP)?

Accepted Answer

According to Statistics Canada, tax revenues collected by all levels of government amounted to approximately 38 percent of Canada's Gross Domestic Product (GDP) in 2008.

Question 11

Some important taxes are regressive, such as provincial sales taxes. In an effort to achieve proportionality in the overall tax system it is therefore necessary to impose

Accepted Answer

Substantial progressivity in income taxes is necessary to balance out the regressive effects of provincial sales taxes, achieving proportionality in the overall tax system. This would ensure that the burden of taxation is distributed fairly among different income groups.

Question 12

Which of the following best describes the policy implications of a Laffer curve?

Accepted Answer

The Laffer Curve suggests that there is an optimal tax rate that maximizes government revenue, and beyond that point, increasing taxes actually decreases revenue due to disincentives for work and investment. Therefore, policy makers should carefully consider whether a given increase in tax rates would increase or decrease tax revenues. It is not advisable to eliminate tax deductions or loopholes without careful consideration of their impact on revenue. It is also not advisable to set the tax rate as low as possible, as this may not necessarily maximize revenue. The Laffer Curve does suggest that high taxes on income may decrease the work incentive, but this is not the most relevant policy implication.

Question 13

The Goods and Service Tax (GST) taxes

Accepted Answer

GST is a value-added tax that is levied on the value added by each firm at each stage of the production process, which is each firm's contribution to the value of the final output.

Question 14

The Canadian federal government's system of "equalization payments"

Accepted Answer

Equalization payments are made out of the federal government's general revenues to provinces with below-average tax capacity. The objective is to ensure that all provinces have the capacity to provide comparable levels of public services at similar levels of taxation. The payments are not loans but rather unconditional transfers.

Question 15

The table below shows 2009 federal income- tax rates in Canada. $\begin{array}{|l|l|}
\hline \text { Taxable Income } & \text { Mar ginal Tax Rate } \
\hline \$ 0-\$ 40726 & 15 \text { percent } \
\hline \$ 40727-\$ 81452 & 22 \text { percent } \
\hline \$ 81453-\$ 126264 & 26 \text { percent } \
\hline \$ 126265 \text { and over } & 29 \text { percent } \
\hline
\end{array}$
$\text { TABLE 18- } 1$
-Refer to Table 18- 1. If an individual had a taxable income of $120 000, how much federal tax would be due from the earnings taxed at the rate of 26 percent?

Accepted Answer

The answer of The table below shows 2009 federal income-...

Question 16

A tax that takes a smaller percentage of income as the income increases is called

Accepted Answer

A regressive tax takes a smaller percentage of income as the income increases, meaning it places a heavier burden on lower-income earners relative to their income.

Question 17

A "poverty trap" refers to the situation where

Accepted Answer

A "poverty trap" refers to tax- generated disincentives that exist for very- low- income persons to increase their earned income. This can arise due to the loss of social benefits, such as welfare or healthcare, as income rises. As a result, individuals may choose not to take on additional work or training opportunities that could lead to better-paying jobs and further perpetuate their poverty.

Question 18

According to Statistics Canada's definition, the percentage of families living below the poverty line in Canada in 2006 was about

Accepted Answer

The answer of According to Statistics Canada's definition, the percentage...

Question 19

If there were "horizontal equity" between all households in Canada, then

Accepted Answer

Horizontal equity refers to the principle that individuals or households with the same ability to pay should bear the same tax burden.

Question 20

The table below shows 2009 federal income- tax rates in Canada. $\begin{array}{|l|l|}
\hline \text { Taxable Income } & \text { Mar ginal Tax Rate } \
\hline \$ 0-\$ 40726 & 15 \text { percent } \
\hline \$ 40727-\$ 81452 & 22 \text { percent } \
\hline \$ 81453-\$ 126264 & 26 \text { percent } \
\hline \$ 126265 \text { and over } & 29 \text { percent } \
\hline
\end{array}$
$\text { TABLE 18- } 1$
-Refer to Table 18- 1. If an individual had a taxable income of $120 000, how much federal tax would be due from the earnings taxed at the rate of 22 percent?

Accepted Answer