Principles of Economics (12th Edition)
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?
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