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

Question

Quizplus · Accepted Answer

The effective tax rate captures the ultimate economic burden of a tax because it takes into account both the direct costs of the tax to the taxpayer (such as the amount of money they must pay to the government) and the indirect costs (such as changes in behavior or market outcomes that result from the tax). The marginal tax rate only captures the direct impact of the tax on the next unit of income earned, while the average tax rate and proportional tax rate are measures of taxation relative to income and do not capture the full economic burden of the tax.

The Ultimate Economic Burden of a Tax Is Best Captured