A tax is efficient if
A)individuals with the lowest incomes pay proportionately lower taxes than individuals with the highest incomes.
B)it is based on profits earned and not on wages.
C)it encourages saving and investment.
D)it imposes a small excess burden relative to the revenue it raises.

Question

Quizplus · Accepted Answer

An efficient tax is one that minimizes the excess burden, which refers to the loss of economic welfare above and beyond the revenue generated by the tax. Therefore, option D is the correct choice. Options A and B have more to do with the distribution of the tax burden rather than its efficiency, while option C refers to the economic effects of taxation rather than its efficiency.

A Tax Is Efficient If