Which of the following statements is true?
A) imposes taxes only on goods with elastic demand curves
B) eliminates the excess burden of taxation
C) minimizes the excess burden for any given amount of tax revenue
D) does not redistribute wealth

Question

Quizplus · Accepted Answer

A tax system with a broad base and low marginal rates minimizes the excess burden for any given amount of tax revenue. This is because it minimizes the distortionary effects of taxation on economic behavior. Choice A is incorrect because a tax on goods with elastic demand curves would lead to a large decline in demand and a decrease in tax revenue. Choice B is incorrect because even with a broad-based and low marginal rate tax system, there will still be some excess burden due to the distortionary effects of taxation. Choice D is incorrect because some tax systems, such as progressive income taxes, do redistribute wealth.

Which of the Following Statements Is True