The ultimate economic burden of a tax is best captured by:
A) The average tax rate.
B) The proportional tax rate.
C) The effective tax rate.
D) The marginal tax rate.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The effective tax rate takes into account not only the direct payment of the tax, but also any changes in behavior or economic activity that result from the tax. Thus, it best captures the true economic burden of the tax. The average tax rate, proportional tax rate, and marginal tax rate are all important measures in their own right, but do not fully capture the economic burden of a tax.

The Ultimate Economic Burden of a Tax Is Best Captured