Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 19, Problem 1.3P
To determine
Identify if the tax is proportional, progressive, or regressive in nature.
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Your Finance Minister considers making a tax reform. He asks you, as a senior tax administrator, to advise him on the requirements from a good tax system. What would you advise him?
Is the tax imposed on cigarettes a progressive, proportional, or a regressive form of taxation? Why? What are some other examples of this type of tax?
Some economists have argued that taxation is one of the causes of economic inefficiency. They claim that taxation creates serious adverse effects on the economy through market distortions and heavy burdens on businesses and consumers.
Others argue that taxation is not only a reliable source of revenues to implement government programs and projects (building schools, roads, highways, financing research & development), but also the net loss of efficiency due to taxation is not too large as claimed. The negative effects of taxation can be eliminate by implementing an optimal tax code.
Provide your arguments on how we should reform the tax code in order to allow the governments to collect tax revenues without putting unnecessary burdens to businesses and consumers. Or should the government eliminate taxation?
Chapter 19 Solutions
Principles of Economics (12th Edition)
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- How can the government improve tax collections without imposing much tax to the consumer?arrow_forwardIf the government imposes a tax of 8% on luxury cars that the consumer must pay, why does the consumer not actually pay the full 8%? How is it determined how much the consumer will pay and how much the producer will pay? Is it possible for an 8% tax the government imposes on the consumer to actually have 1% paid by the consumer and 7% by the producer? Why or why not?arrow_forwardGive an example for the Average Tax Rates?arrow_forward
- The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forwardIn today’s societies, we pay several different types of taxes. Take a moment to consider all the different kinds of taxes you paid last week. You might have paid sales tax on items you bought or had income come out of your paycheck. To complete the Discussion activity, write a post that answers the following questions: Name three types of taxes and analyze the deadweight loss of each.arrow_forwardWhat determines whether the buyer or seller pays the bulk of the tax?arrow_forward
- Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax? Both the size of the deadweight loss and tax revenue increase. The size of the deadweight loss increases, but the tax revenue decreases. The size of the deadweight loss increases, but the tax revenue first increases, then decreases. Both the size of the deadweight loss and tax revenue decrease.arrow_forwardBriefly discuss the effect of price elasticity of supply and demand on tax incidence. When the demand for a product is less elastic than supply. pay the majority of the tax on a product; when supply for a product is less elastic than the demand, pay the majority of the tax on the pre firms consumersarrow_forwardsome economists have argued that corporate taxes should be eliminated and only individuals should be taxed. explain.arrow_forward
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