Deck 15: Public Choice, Taxes, and the Distribution of Income

Question 1

The median voter model implies that

A)many people will be satisfied with the amount of spending on government funded projects.
B)many people will be dissatisfied with the amount of spending on government funded projects.
C)people in the political middle will be dissatisfied with the amount of spending on government funded projects.
D)spending on government funded projects reflects the preferences of only those far away from the median.

Answer 1

B

Question 2

Table 15.1
$\begin{array}{|c|c|c|c|} \hline & \text { Ivy } & \text { Jasmine } & \text { Rose } \\\hline \text { Subsidies for education } & \text { 2nd } & \text { 3rd } & \text { 1st } \\\hline \text { Research on Alzheimer's } & \text { 3rd } & \text { 1st } & \text { 2nd } \\\hline \text { Subsidies for daycare } & 1 \text { st } & \text { 2nd } & \text { 3rd }\\\hline\end{array}$
Suppose $1 billion is available in the budget and Parliament is considering allocating the funds to one of the following three alternatives: 1)Subsidies for education, 2)Research on Alzheimer's or 3)Subsidies for daycare. Table 15.1 shows three voters' rankings of the alternatives.

-Refer to Table 15.1.Suppose a series of votes are taken in which each pair of alternatives is considered in turn.If the vote is between allocating funds to research on Alzheimer's and subsidies for daycare,

A)Ivy and Jasmine vote for Alzheimer's research, Rose votes for increased subsidies for daycare, and Alzheimer's research wins.
B)Ivy and Rose vote for increased subsidies for daycare, Jasmine votes for Alzheimer's research, and increased increased subsidies for daycare wins.
C)Jasmine and Rose vote for Alzheimer's research, Ivy votes for increased subsidies for daycare, and Alzheimer's research wins.
D)Jasmine and Ivy vote for increased subsidies for daycare, Rose votes for Alzheimer's research, and increased subsidies for daycare wins.

Answer 2

Jasmine and Rose vote for Alzheimer's research, Ivy votes for increased subsidies for daycare, and Alzheimer's research wins.

Question 3

The median voter theorem states that the outcome of a majority vote

A)tends to favour the preferences of high income individuals and ignore the median voter.
B)is likely to represent the preferences of society's middle-income voter.
C)is likely to represent the preferences of the voter who is in the political middle.
D)is determined by the average consumer and producer in an economy.

Answer 3

C

Question 4

The median voter theorem will be an accurate predicator of the outcomes of elections

A)only when voter turnout is very high.
B)when a majority of voters have preferences very similar to those of the median voter.
C)when a majority of voters have preferences different from those of the median voter.
D)regardless of whether preferences among voters are similar or different from those of the median voter.

Question 5

Suppose $1 billion is available in the budget and Parliament is considering allocating the funds to one of the following three alternatives:
A)subsidies for education
B)research on Alzheimer's
C)increased subsidies for daycare
If voters prefer a to b and b to c, then if preferences are transitive,

A)they should prefer a to c.
B)they should prefer c to a.
C)they should be indifferent between a and c.
D)it is not always possible to rank voters' preferences between a and c.

Question 6

Which of the following statements about rent seeking is false?

A)Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for.
B)A person is engaging in rent seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public.
C)Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.
D)If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

Question 7

According to public choice theory, policymakers

A)place the interests of the public above their own self-interest.
B)are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.
C)act in ways to maximize economic efficiency.
D)act in ways to bring about an equitable distribution of society's wealth.

Question 8

Tax laws affect

A)economic efficiency but not equity.
B)equity but not economic efficiency.
C)consumption and production, not efficiency and equity.
D)both efficiency and equity.

Question 9

One argument advanced in favour of reducing corporate income tax rates is

A)corporations increase the wealth of shareholder's which contribute to increases in GDP.
B)reducing corporate income tax will lead to a higher capital stock and a higher standard of living.
C)corporate dividends accrue mostly to middle-income and low-income investors who are already paying heavy income taxes.
D)corporate income tax is illegal.

Question 10

The Arrow impossibility theorem states that

A)no system of voting can be devised that will always consistently represent the underlying preferences of voters.
B)it is impossible for a majority voting system not to consistently represent the preferences of voters.
C)it is impossible to separate corporate desires from public bureaucracy.
D)no system of voting can be devised that will ensure a 100 percent voter turnout.

Question 11

One argument advanced in favour of raising corporate income taxes is

A)dividends increase the wealth of shareholder's which could lead to inflation.
B)the tax revenue gained can be used to pay for social programs.
C)corporate dividends accrue mostly to low income individuals, thus increasing income inequality.
D)it increases the incentive for corporations to maximize shareholder value.

Question 12

What is the voting paradox?

A)the observation that less than 60 percent of those eligible to vote actually vote
B)the observation that majority voting may not always result in consistent choices
C)the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority
D)people are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians

Question 13

Table 15.1
$\begin{array}{|c|c|c|c|} \hline & \text { Ivy } & \text { Jasmine } & \text { Rose } \\\hline \text { Subsidies for education } & \text { 2nd } & \text { 3rd } & \text { 1st } \\\hline \text { Research on Alzheimer's } & \text { 3rd } & \text { 1st } & \text { 2nd } \\\hline \text { Subsidies for daycare } & 1 \text { st } & \text { 2nd } & \text { 3rd }\\\hline\end{array}$
Suppose $1 billion is available in the budget and Parliament is considering allocating the funds to one of the following three alternatives: 1)Subsidies for education, 2)Research on Alzheimer's or 3)Subsidies for daycare. Table 15.1 shows three voters' rankings of the alternatives.

-Refer to Table 15.1.Suppose a series of votes are taken in which each pair of alternatives is considered in turn.The first pair considered is between subsidies for education and research on Alzheimer's.The second pair considered is between Alzheimer's research and increased subsidies for daycare.The third pair considered is between education subsidies and increased subsidies for daycare.In this case, the collective preferences of the voters

A)turn out to be transitive and will yield a consistent outcome.
B)turn out to be transitive but will not result in a consistent outcome.
C)turn out not to be transitive and will not result in a consistent outcome.
D)turn out not to be transitive but will yield a consistent outcome.

Question 14

The public choice model

A)examines the degree of market power that the public exerts in a market economy.
B)examines the public's role in appointing politicians and ensuring that elected officials act in ways to reflect the public's preferences.
C)applies economic analysis to government decision making.
D)applies economic analysis to the collective decision making of consumers.

Question 15

Why is a typical person likely to gather more information when buying a new car than when voting for a Member of Parliament?

A)because a person's preferences are more likely to be met with little effort in the political sphere but this is not the case when buying a car in the private marketplace
B)because it is less costly to acquire information about consumer items than it is about political candidates
C)because buying a new car affects a person more immediately and personally compared to voting for a Member of Parliament; in the latter, a person's vote is only one of many voters and therefore, not likely to have a large impact on the outcome
D)because the effects of buying a car are long term while a Member of Parliament has a relatively short tenure

Question 16

The voting paradox suggests that the "voting market," as represented by elections,

A)lead to a superior outcome in representing consumer preferences compared to the private market for goods and services.
B)may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services.
C)is no different from the private market for goods and services in terms of representing consumer preferences.
D)may not lead to an efficient outcome but certainly leads to a more equitable outcome in terms of distributing goods and services.

Question 17

Table 15.1
$\begin{array}{|c|c|c|c|} \hline & \text { Ivy } & \text { Jasmine } & \text { Rose } \\\hline \text { Subsidies for education } & \text { 2nd } & \text { 3rd } & \text { 1st } \\\hline \text { Research on Alzheimer's } & \text { 3rd } & \text { 1st } & \text { 2nd } \\\hline \text { Subsidies for daycare } & 1 \text { st } & \text { 2nd } & \text { 3rd }\\\hline\end{array}$
Suppose $1 billion is available in the budget and Parliament is considering allocating the funds to one of the following three alternatives: 1)Subsidies for education, 2)Research on Alzheimer's or 3)Subsidies for daycare. Table 15.1 shows three voters' rankings of the alternatives.

-Refer to Table 15.1.Suppose a series of votes are taken in which each pair of alternatives is considered in turn.If the vote is between allocating funds to education subsidies and increased subsidies for daycare,

A)Ivy and Jasmine vote for education subsidies, Rose votes for increased subsidies for daycare, and education subsidies wins.
B)Ivy and Rose vote for increased subsidies for daycare, Jasmine votes for education subsidies, and increased subsidies for daycare wins.
C)Jasmine and Rose vote for education subsidies, Rose votes for increased subsidies for daycare, and education subsidies wins.
D)Jasmine and Ivy vote for increased subsidies for daycare, Rose votes for education subsidies, and increased subsidies for daycare wins.

Question 18

Which of the following is not an example of rent seeking behavior?

A)competition for subsidies
B)lobbying the government to impose tariffs on certain imported products
C)competition for the exclusive right to import a product
D)engaging in aggressive advertising that slams a competitor's product

Question 19

Table 15.1
$\begin{array}{|c|c|c|c|} \hline & \text { Ivy } & \text { Jasmine } & \text { Rose } \\\hline \text { Subsidies for education } & \text { 2nd } & \text { 3rd } & \text { 1st } \\\hline \text { Research on Alzheimer's } & \text { 3rd } & \text { 1st } & \text { 2nd } \\\hline \text { Subsidies for daycare } & 1 \text { st } & \text { 2nd } & \text { 3rd }\\\hline\end{array}$
Suppose $1 billion is available in the budget and Parliament is considering allocating the funds to one of the following three alternatives: 1)Subsidies for education, 2)Research on Alzheimer's or 3)Subsidies for daycare. Table 15.1 shows three voters' rankings of the alternatives.

-Refer to Table 15.1.Suppose a series of votes are taken in which each pair of alternatives is considered in turn.If the vote is between allocating funds to subsidies for education and research on Alzheimer's,

A)Ivy and Jasmine vote for education subsidies, Rose votes for Alzheimer's research, and education subsidies wins.
B)Ivy and Rose vote for education subsidies, Jasmine votes for Alzheimer's research, and education subsidies wins.
C)Jasmine and Rose vote for Alzheimer's research, Ivy votes for education subsidies, and Alzheimer's research wins.
D)Jasmine and Ivy vote for Alzheimer's research, Rose votes for education subsidies, and Alzheimer's research wins.

Question 20

What are the two types of taxes that working individuals pay on their earnings?

A)individual income tax and sales tax
B)payroll tax and sales tax
C)individual income tax and social insurance premium
D)property tax and payroll tax

Question 21

Unlike the market process, in the political market it is possible for some individuals to receive very large benefits from the political process without any significant impact on their tax bills.

Question 22

Local governments in Canada receive most of their revenue from

A)individual income taxes.
B)property tax on real estate.
C)transfers from provincial governments.
D)property taxes.

Question 23

What is the relationship between market failure and government failure?

Question 24

An example of an excise tax in Canada is

A)the extra you pay for alcoholic drinks.
B)taxes on corporate profit.
C)employment insurance premiums.
D)property taxes on real estate.

Question 25

The largest source of revenue for the federal government of Canada

A)tariffs collected on imported goods.
B)property taxes imposed on private property.
C)sales taxes on items purchased for consumption.
D)individual income taxes.

Question 26

One important difference between the political process and the market process is that

A)the political process results in collective actions in which not everyone is required to participate, while in the market process individuals are obliged to participate.
B)the political process results in collective actions in which everyone is obliged to participate, while in the market process individuals are free to participate or not.
C)the political process results in collective actions that maximize economic surplus, while the market process may lead to efficiency losses.
D)the political process results in collective actions in which everyone is made better off, while the market process results in actions that favor some groups only.

Question 27

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product.Which of the following is the best example of regulatory capture?

A)Health Canada has increased the time and expense pharmaceutical firms incur to receive approval to market a new drug.
B)A federal government agency hires more employees than it requires to regulate an industry because it does not seek to minimize costs or maximize the agency's profits.
C)The head of an agency is required to testify before Parliament because Parliament controls the size of the agency's budget. Parliament "captures" the agency because of its budget authority.
D)Firms running taxi services get local governments to keep the number of taxi licences in their cities small.

Question 28

The public choice model asserts that the self-interest of policymakers is likely to cause them to take actions that are inconsistent with the preferences of voters, even where those preferences are clear.

Question 29

When the majority of voters have preferences very different from those of the median voter, then the median voter theorem will lead to accurate predictions of the outcomes of elections.

Question 30

Logrolling may result in

A)legislation that yields economy-wide benefits, the funding for which is borne primarily by a few of the smallest states.
B)a majority of Parliament supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group.
C)members of Parliament selling their votes on proposed legislation to the highest bidder.
D)creating limited incentives for policymakers to consider the immediate consequences of their proposed legislation.

Question 31

Table 15.2

Refer to Table 15.2.The table above outlines the rankings of three members of Parliament on three spending alternatives.Assume that Parliament can spend additional revenue on only one of the three spending alternatives and that Bart, Lisa, and Maggie, all members of Parliament, participate in a series of votes in which they are to determine which of the spending alternatives should receive funding.Three votes will be taken: (1)Highway Improvements and Employment Insurance Benefits (2)Highway Improvements and Social Safetynet Reform and (3)Employment Insurance Benefits and Social Safetynet Reform.
Show the results of each vote and determine whether the voting paradox will occur as a result of these votes.

Question 32

Rational ignorance

A)explains why consumers ignore sunk costs when they vote.
B)explains the Arrow impossibility theorem.
C)refers to attempts by special interests to use government action to make themselves better off at the expense of others.
D)helps to explain why rent seeking by special interest groups occurs.

Question 33

What is logrolling?

A)a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills
B)a situation where policymakers transfer resources from those voters who are unlikely to have a huge impact on the political outcome to those who contribute to political campaigns
C)a situation where a policymaker accepts bribes to prevent proposed legislation from coming to a vote
D)a situation where a policymaker gets the government to fund a non-essential project benefiting her family members

Question 34

A situation where a Member of Parliament votes to approve a bill in exchange for favorable votes from other members on other bills is called

A)rent seeking.
B)logrolling.
C)regulatory capture.
D)special interest legislation.

Question 35

What is the difference between the voting paradox and the Arrow impossibility theorem?

Question 36

What is meant by the term "rational ignorance"?

A)It refers to the absence of a negative incentive, for example, a fine for not voting, which results in a low voter turnout.
B)It refers to a situation where one policymaker deliberately approves a bill he does not support in exchange for a future favorable vote for his own cause.
C)It means the lack an economic incentive for voters to become informed about a pending legislation.
D)It refers to the fact that policymakers and their constituents have different ideas of what it means to behave rationally and each party deliberately ignores the other's view.

Question 37

If voters lack an economic incentive to become informed about pending legislation, then their preferences become a constraint on legislators voting for rent-seeking legislation.

Question 38

What is regulatory capture?

A)It is a situation in which a policy maker seeks to improve his election prospects by aligning himself with a powerful special interest group which will finance his political campaign.
B)It is the exchange of political support between a regulatory agency and the regulated firm resulting in both parties capturing economic rents.
C)It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.
D)It is a situation in which a regulatory agency uses its authority to force actions that are not favored by the regulated firms but are in the public's interest.

Question 39

Define logrolling.Explain why logrolling often results in legislation that benefits the economic interests of a few, while harming the interests of a larger group of people.

Question 40

Is a typical person likely to gather more information when buying a new computer or when voting for a member of Parliament? Why?

Question 41

Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate

A)determines how tax revenue will change as national income increases.
B)affects people's willingness to work, save, and invest.
C)always equals the average tax rate which is harder to measure.
D)determines how much revenue the government will have to spend.

Question 42

A tax bracket is

A)the percent of taxable income paid in taxes at a specific income bracket.
B)the income range within which a particular tax rate applies.
C)the type of tax structure for which a range of taxes applies.
D)the range, from the high to the low tax rate, of a particular type of tax.

Question 43

If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income of $30,000, then over this range of income the tax is

A)regressive.
B)proportional.
C)progressive.
D)There is insufficient information to answer the question.

Question 44

Table 15.4
$\begin{array}{|c|c|}\hline \text { Income Tax Bracket } & \text { Marginal Tax Rate } \\\hline \$ 0-8,000 & 12 \% \\\hline 8,001-22,000 & 17 \% \\\hline 22,001-48,000 & 25 \% \\\hline 48,001 \text { and over } & 38 \% \\\hline\end{array}$
Table 15.4 shows the income tax brackets and tax rates for single taxpayers in Madeupistan.

-Refer to Table 15.4.Sasha is a single taxpayer with an income of $60,000.What is his marginal tax rate and what is his average tax rate?

A)marginal tax rate = 38%; average tax rate = 23%
B)marginal tax rate = 17%; average tax rate = 21%
C)marginal tax rate = 38%; average tax rate = 24%
D)marginal tax rate = 23%; average tax rate = 38%

Question 45

An average tax rate is calculated as

A)total taxable income × taxes paid.
B)total taxable income ÷ taxes paid.
C)taxes paid ÷ total taxable income.
D)(total taxable income - taxes paid)÷ taxable income.

Question 46

A personal exemption refers to

A)the tax rate that applies to a particular tax bracket.
B)the tax bracket that represents basic living expenses.
C)an amount representing basic living expenses that can be subtracted from income.
D)a dispensation that allows certain qualifying individuals not to pay federal taxes.

Question 47

If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income of $30,000, then over this range of income the tax is

A)regressive.
B)proportional.
C)progressive.
D)There is insufficient information to answer the question.

Question 48

If the marginal tax rate is less than the average tax rate as taxable income increases, the tax structure is

A)regressive.
B)proportional.
C)progressive.
D)unfair.

Question 49

A marginal tax rate is calculated as

A)total taxable income ÷ by taxes paid.
B)taxes paid ÷ total taxable income.
C)change in taxes paid ÷ the change in total taxable income.
D)change in taxable income ÷ change in taxes paid.

Question 50

If the marginal tax rate is equal to the average tax rate as taxable income increases, the tax structure is

A)regressive.
B)proportional.
C)progressive.
D)unfair.

Question 51

A marginal tax rate is

A)the fraction of income that must be paid in taxes.
B)the fraction of each additional dollar of income that must be paid in taxes.
C)the incremental income one must earn to offset each additional dollar of tax.
D)the ratio of a change in income to a change in taxes paid.

Question 52

If, as your taxable income decreases, you pay a larger percentage of your taxable income in taxes, then the tax is

A)regressive.
B)proportional.
C)progressive.
D)unfair.

Question 53

If you pay a constant percentage of your taxable income in taxes, the tax is

A)regressive.
B)proportional.
C)progressive.
D)random.

Question 54

Provincial governments get most of their operating funds from

A)transfers from the federal government and personal income taxes.
B)corporate taxes and personal income taxes.
C)taxes on products and personal income taxes.
D)investment income and taxes on products.

Question 55

If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is

A)regressive.
B)proportional.
C)progressive.
D)There is insufficient information to answer the question.

Question 56

The largest percentage of federal income tax revenue in Canada is paid by the

A)lowest income taxpayers.
B)middle income taxpayers.
C)highest income taxpayers.
D)All groups of taxpayers-low income, high income and middle income-pay the same percent of federal income taxes.

Question 57

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is

A)regressive.
B)proportional.
C)progressive.
D)unfair.

Question 58

Table 15.3
$\begin{array}{|c|r|}\hline \text { Taxable Income } & \text { Tax Payments } \\\hline \$ 20,000 & \$ 2,000 \\\hline 25,000 & 2,250 \\\hline 32,000 & 2,560 \\\hline 42,000 & 2,940 \\\hline\end{array}$
Table 15.3 shows the amount of taxes paid on various levels of income in Notrealia.

-Refer to Table 15.3.Notrealia's tax system is

A)progressive throughout all levels of income.
B)proportional throughout all levels of income.
C)regressive throughout all levels of income.
D)regressive between $20,000 and $25,000 of income and progressive between $32,000 and $42,000.

Question 59

Exemptions and deductions are used

A)to add to taxes that must be paid.
B)by taxpayers to reduce the amount of income subject to tax.
C)to determine the type of tax structure.
D)to determine what items are subject to sales taxes.

Question 60

Table 15.4
$\begin{array}{|c|c|}\hline \text { Income Tax Bracket } & \text { Marginal Tax Rate } \\\hline \$ 0-8,000 & 12 \% \\\hline 8,001-22,000 & 17 \% \\\hline 22,001-48,000 & 25 \% \\\hline 48,001 \text { and over } & 38 \% \\\hline\end{array}$
Table 15.4 shows the income tax brackets and tax rates for single taxpayers in Madeupistan.

-Refer to Table 15.4.Calculate the income tax paid by Sasha, a single taxpayer with an income of $60,000.

A)$22,800
B)$14,399
C)$13,800
D)$13,642

Question 61

If your income is $40,000 and you pay taxes of $4,650, what is your average tax rate? Show your work.

Question 62

All of the following occur whenever a government taxes a product except

A)the quantity consumed of that product falls.
B)the price of that product rises.
C)the marginal benefit of the last unit sold exceeds the marginal cost of producing it.
D)there will be no excess burden if the government's tax revenue is sufficiently large to offset the deadweight loss.

Question 63

Consider a public good such as fire protection services.Rich people may benefit more than the poor from such a service because rich people stand to lose more from a fire that destroys property.In this case,

A)the ability-to-pay principle may support the rich paying more taxes than the poor, but not the benefits-received principle.
B)the benefits-received principle may support the rich paying more taxes than the poor, but not the ability-to-pay principle.
C)both the benefits-received and the ability-to-pay principles may support the rich paying more taxes than the poor.
D)neither the benefits-received nor the ability-to-pay principles may support the rich paying more taxes than the poor.

Question 64

If the marginal tax rate is greater than the average tax rate, the tax structure is described as regressive.

Question 65

If you pay $3,000 in taxes on an income of $28,000, and $4,450 in taxes on an income of $38,000, what is your marginal tax rate? Show your work.

Question 66

The federal corporate income tax is

A)regressive.
B)proportional.
C)progressive.
D)unfair.

Question 67

Table 15.5

Table 15.5 shows the income tax brackets and tax rates for single taxpayers in Bauxhall.
Refer to Table 15.5.A tax exemption is granted for the first $10,000 earned per year.Suppose you earn $75,000.
a.What is the amount of taxes you will pay?
b.What is your average tax rate?
c.What is your marginal tax rate?

Question 68

Suppose, on average, a family in Church Falls earning $60,000 per year paid 6 percent of its income in provincial taxes.A family earning $80,000 paid, on average, $4,760 in provincial income taxes.Are provincial taxes in Church Falls progressive or regressive? Be sure to explain the difference between a progressive tax and a regressive tax.

Question 69

Exempting food purchases from sales tax is consistent with the ability-to-pay principle, although not necessarily consistent with vertical equity.

Question 70

The government of Silverado raises revenue to operate the city's hospital, open to all residents, through a general income tax paid by its residents.This method of raising revenue is consistent with the benefits-received principle.

Question 71

The federal goods and services tax

A)is consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income people.
B)is not consistent with the ability-to-pay principle because low-income individuals tend to spend a larger fraction of their income than do high-income individuals.
C)is not consistent with the ability-to-pay principle because low-income individuals tend to purchase a smaller bundle of goods and services compared to high-income individuals.
D)is not consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income individuals, yet pay the same sales tax rate.

Question 72

The "ability-to-pay" principle of taxation is the normative idea that

A)an equitable tax system is one in which high income individuals should bear a greater burden of taxes than low income individuals.
B)each individual should voluntarily contribute according to her ability to pay taxes.
C)progressive taxes are more equitable than regressive taxes.
D)two individuals earning the same income should have equal ability to pay, all else constant.

Question 73

The government of Notrealia raises revenue through a general income tax paid by all its residents to operate the city's marina.The marina is used by private boat owners.This method of raising revenue to operate the marina is

A)consistent with the benefits-received principle.
B)consistent with the ability-to-pay principle.
C)inconsistent with the benefits-received principle.
D)inconsistent with the ability-to-pay principle.

Question 74

Under a consumption tax, households

A)are exempt from taxes on interest earned on savings.
B)pay taxes only on the part of income they spend.
C)pay higher taxes on the part of income they spend and lower taxes on the part of income they save.
D)pay taxes only on their purchases of luxury items.

Question 75

Horizontal equity means that two people in identical economic situations should pay the same amount of taxes.

Question 76

Users fees for ports and marinas are an example of the ________.

A)the ability-to-pay principle
B)the horizontal-equity principle
C)the vertical-equity principle
D)the benefits-received principle

Question 77

Which of the following statements about a consumption tax is false?

A)Compared to an income tax, a consumption tax would necessarily produce lower revenues for the government in a given year because the portion of income saved is not taxed.
B)A consumption tax encourages saving, which when invested could lead to increased economic activity.
C)Under a consumption tax, current consumption is taxed at a lower rate than future consumption.
D)A consumption tax could favour high-income individuals who are likely to save more than low-income individuals.

Question 78

"Sin taxes," such as taxes on alcoholic beverages, are intended to

A)increase the amount of the products supplied.
B)generate money to subsidize production of the products taxed.
C)reduce the quantity demanded.
D)generate funds to aid in the medical care of those harmed by the product.

Question 79

The idea that two taxpayers in the same economic circumstances should pay the same level of taxes is known as the

A)ability-to-pay principle.
B)vertical-equity principle.
C)horizontal-equity principle.
D)benefits-received principle.

Question 80

The idea that individuals should be taxed in proportion to the marginal benefits that they receive from public goods is called

A)the ability-to-pay principle.
B)the horizontal-equity principle.
C)the vertical-equity principle.
D)the benefits-received principle.