A dynamic forecast of the incremental revenue from a tax rate increase presumes that:
A) Taxpayers will not change their behavior because of the rate increase.
B) The tax base will increase by the same proportion as the rate increase.
C) The tax base will decrease by the same proportion as the rate increase.
D) The tax rate and the tax base are correlated.

Question

Quizplus · Accepted Answer

A dynamic forecast of the incremental revenue from a tax rate increase takes into account that taxpayers may change their behavior due to the rate increase, which can affect the tax base. This implies a correlation between the tax rate and the tax base, as changes in the tax rate can lead to changes in the tax base, contrary to static forecasting which assumes no behavioral changes.

A Dynamic Forecast of the Incremental Revenue from a Tax