Suppose the government of Mascolia is considering replacing its income tax system with a consumption tax.Assume that the government's revenue requirement would be the same under either system.
(a)How would the base of a consumption tax compare with the base of an income tax? Does this have implications for the magnitude of the tax rate on consumption versus the magnitude of the tax rate on income? Explain.
(b)Compare the income tax and consumption tax in terms of vertical equity,assuming that both tax all people at the same rate (for example,a 20% tax on income and a 20% sales tax).

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The Answer of Suppose the government of Mascolia is considering replacing its income tax system with a consumption tax.Assume that the government's revenue requirement would be the same under either system.
(a)How would the base of a consumption tax compare with the base of an income tax? Does this have implications for the magnitude of the tax rate on consumption versus the magnitude of the tax rate on income? Explain.
(b)Compare the income tax and consumption tax in terms of vertical equity,assuming that both tax all people at the same rate (for example,a 20% tax on income and a 20% sales tax).

Suppose the Government of Mascolia Is Considering Replacing Its Income