Question 1

A proportional income tax has an average tax rate that:

Accepted Answer

In a proportional income tax system, the average tax rate (total taxes paid divided by total income) remains constant regardless of income level, which means it always equals the marginal tax rate (the rate at which the last dollar earned is taxed).

Question 2

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:

Accepted Answer

A regressive tax means the tax rate decreases as the taxable amount increases. In this case, the payroll tax is regressive because the tax rate is 14% until the worker earns $60,000 per year, but any labor earnings in excess of $60,000 are not subject to tax. Therefore, workers with higher incomes pay a lower percentage of their income in payroll taxes compared to workers with lower incomes, making this tax structure regressive.

Question 3

An excise tax is a:

Accepted Answer

An excise tax is a selective consumption tax, which is imposed on specific goods or services, such as alcohol, tobacco, fuel, or luxury items. It is not a general consumption tax, which is applied to all goods and services. It is also not a general wealth tax or a selective tax on wealth, as it is not based on an individual's income or assets.

Question 4

A tax on real estate is a:

Accepted Answer

A tax on real estate is a selective wealth tax because it targets a specific form of wealth (real estate) rather than all forms of wealth (general wealth tax) or all consumption (general consumption tax). It is not an income tax because it is not based on the amount of income earned by the owner of the real estate.

Question 5

Tax avoidance is a:

Accepted Answer

Tax avoidance refers to legitimate means of reducing taxes paid by adjusting behavior, such as taking deductions or utilizing tax incentives. It is different from tax evasion which involves illegal means of not paying taxes owed. Tax avoidance is also not a political process specifically aimed at reducing taxation.

Question 6

How do taxes differ from prices? What are the major alternatives to taxes as sources of government finance? How does a progressive rate structure differ from a proportional rate structure?

Accepted Answer

The answer of How do taxes differ from prices? What...

Question 7

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

Accepted Answer

A 5-percent retail sales tax is a flat-rate tax because it applies the same tax rate to all consumer purchases regardless of the amount spent or the income of the purchaser.

Question 8

Taxes are likely to affect:

Accepted Answer

Taxes can affect market equilibrium by changing the price or quantity of goods and services. They can also affect political equilibrium by influencing government spending and policy decisions. Finally, taxes can impact the distribution of income by shifting resources from higher-income to lower-income individuals through progressive taxation or government programs. Therefore, all of these options are correct.

Question 9

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

Accepted Answer

The answer of A bridge becomes congested after 100 vehicles...

Question 10

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

Accepted Answer

Under a proportional tax rate structure, the marginal tax rate and the average tax rate should be the same. Therefore, if the marginal tax rate is 20 percent, the average tax rate should also be 20 percent.

Question 11

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

Accepted Answer

Sweden has one of the highest tax rates in the world, with an average tax rate of 44.1% of GDP in 2018 according to the OECD. Korea's tax revenue was 24.9% of GDP, Iceland's tax revenue was 35.7% of GDP, and the United Kingdom's tax revenue was 32.2% of GDP in 2018, making Sweden the highest in terms of tax rate relative to GDP among the given options.

Question 12

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

Accepted Answer

Since the tax rate is progressive, the marginal tax rate (the tax rate on the last dollar earned) will be higher than the average tax rate. Therefore, a possible marginal tax rate could be higher than 35 percent. Option C (42 percent) is the only one that meets this condition, so it is the best choice.

Question 13

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

Accepted Answer

The marginal tax rate is the tax rate applied to the last dollar earned, while the average tax rate is the total amount of taxes paid divided by the total income earned. In a progressive tax system, as income increases, the tax rate also increases. This means that the marginal tax rate will eventually be higher than the average tax rate as the individual moves up the tax brackets.

Question 14

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

Accepted Answer

Governments have to make trade-offs between normative criteria when deciding on their method of taxation. Equity considers the fairness of the tax system and how it impacts different groups of taxpayers. Efficiency examines the effectiveness of the tax system in achieving its intended goals with the least possible resources. Administrative ease evaluates how practical the tax system is to implement and enforce. Therefore, all three criteria- equity, efficiency, and administrative ease- are important and must be weighed against one another to create an effective and balanced taxation policy.

Question 15

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

Accepted Answer

Printing money can lead to inflation because as the money supply increases, the value of each individual unit of currency decreases. Inflation can also lead to consumers giving up private goods to finance the increased government expenditures as the cost of goods and services increases. Therefore, both option (b) and (c) are correct. Option (a) is not necessarily true since the economy operating outside its production possibility curve depends on other factors such as technological advancement and trade.

Question 16

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

Accepted Answer

A tax on the value of real estate holdings is a selective tax on wealth, as it is only imposed on individuals who own real estate assets, and the amount of tax paid is based on the value of those assets. It is not a general tax on all wealth or all income.

Question 17

The tax base of a payroll tax is:

Accepted Answer

The tax base of a payroll tax is labor income, as it is a tax levied on the wages or salaries of workers.

Question 18

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

Accepted Answer

The reduction in marginal tax rates makes it more beneficial for individuals and businesses to report their income and pay taxes rather than engaging in tax evasion. This is because the cost of evading taxes is now higher relative to the amount of taxes saved due to the lower rates. Therefore, reducing marginal tax rates is likely to decrease tax evasion.

Question 19

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?

Accepted Answer

The answer of Explain why it is difficult to evaluate...

Question 20

Taxes:

Accepted Answer

Taxes are compulsory payments required by governments for certain activities, such as earning income, owning property, or purchasing goods and services. They are not voluntary and can have an impact on market supply and demand as well as the efficiency of resource allocation.

Quiz 10: Introduction to Government Finance