Question 1

In the theory of tax evasion,what is the marginal benefit of evading taxes?

Accepted Answer

A)  the additional utility one gets from beating the system 
B)  the tax payment saved per dollar of evasion 
C)  the total tax payment saved by evasion 
D)  the additional utility one gets from beating the system plus the tax payment saved per dollar of evasion 
A)  the additional utility one gets from beating the system 
B)  the tax payment saved per dollar of evasion 
C)  the total tax payment saved by evasion 
D)  the additional utility one gets from beating the system plus the tax payment saved per dollar of evasion B

Question 2

Suppose that,as a result of an income tax rate increase,you pay more tax on the same amount of income.This is an example of which channel through which tax rate changes can change tax revenues?

Accepted Answer

A)  reporting effect 
B)  income exclusion effect 
C)  compliance effect 
D)  direct effect 
A)  reporting effect 
B)  income exclusion effect 
C)  compliance effect 
D)  direct effect D

Question 3

A sales tax is a tax on ________; a payroll tax is a tax on __________.

Accepted Answer

A)  capital gains; income 
B)  consumption; consumption 
C)  consumption; income 
D)  income; income 
A)  capital gains; income 
B)  consumption; consumption 
C)  consumption; income 
D)  income; income C

Question 4

Suppose the personal income tax rate is increased and the risk of getting caught for evading taxes increases.As a result,the marginal benefit of tax evasion _____ for any given level of unreported income and the level of tax evasion _____.

Accepted Answer

A)  increases; is ambiguous 
B)  increases; is positive 
C)  decrease; is negative 
D)  is unchanged; is ambiguous 
A)  increases; is ambiguous 
B)  increases; is positive 
C)  decrease; is negative 
D)  is unchanged; is ambiguous

Question 5

Which statement is NOT true of tax evasion?

Accepted Answer

A)  Tax evasion is inefficient. 
B)  Tax evasion violates vertical equity. 
C)  Tax evasion violates horizontal equity. 
D)  People never made a choice to engage in tax evasion. 
A)  Tax evasion is inefficient. 
B)  Tax evasion violates vertical equity. 
C)  Tax evasion violates horizontal equity. 
D)  People never made a choice to engage in tax evasion.

Question 6

Which definition best describes tax shelters?

Accepted Answer

A)  homeless shelters paid for by voluntary donations on one's tax form 
B)  special sections of the tax code that favor special interests that wish to minimize their tax burden 
C)  tax-exempt regions of the country 
D)  activities whose sole reason for existence is to minimize one's tax burden 
A)  homeless shelters paid for by voluntary donations on one's tax form 
B)  special sections of the tax code that favor special interests that wish to minimize their tax burden 
C)  tax-exempt regions of the country 
D)  activities whose sole reason for existence is to minimize one's tax burden

Question 7

A consumption tax levied on the increase in the value of a good at each stage of production is called a(n):

Accepted Answer

A)  expenditure tax. 
B)  cash-flow tax. 
C)  flat tax. 
D)  value-added tax. 
A)  expenditure tax. 
B)  cash-flow tax. 
C)  flat tax. 
D)  value-added tax.

Question 8

Which of the following is an advantage of a consumption tax relative to the current tax system?

Accepted Answer

A)  A consumption tax is more complex. 
B)  A consumption tax would increase vertical equity. 
C)  A consumption tax would increase horizontal equity. 
D)  A consumption tax reduces savings incentives 
A)  A consumption tax is more complex. 
B)  A consumption tax would increase vertical equity. 
C)  A consumption tax would increase horizontal equity. 
D)  A consumption tax reduces savings incentives

Question 9

Under the Hall-Rabushka flat tax proposal:

Accepted Answer

A)  labor earnings are taxed at a flat rate with an exemption to make the tax more progressive. 
B)  a value-added tax is imposed on the difference between a firm's sales and its allowable deductions. 
C)  firms are allowed to deduct the value of purchased inputs and compensation to workers to arrive at the amount to be taxed under the value-added tax (VAT). 
D)  labor earnings are taxed at a flat rate,with no exemptions to make the tax proportional. 
A)  labor earnings are taxed at a flat rate with an exemption to make the tax more progressive. 
B)  a value-added tax is imposed on the difference between a firm's sales and its allowable deductions. 
C)  firms are allowed to deduct the value of purchased inputs and compensation to workers to arrive at the amount to be taxed under the value-added tax (VAT). 
D)  labor earnings are taxed at a flat rate,with no exemptions to make the tax proportional.

Question 10

Suppose that you respond to an income tax increase by giving more money to charity (which is tax deductible).This is an example of:

Accepted Answer

A)  reporting effect. 
B)  income exclusion effect. 
C)  compliance effect. 
D)  direct effect. 
A)  reporting effect. 
B)  income exclusion effect. 
C)  compliance effect. 
D)  direct effect.

Question 11

Tax _______ is willingness to pay taxes; tax ________ is the result of efforts to reduce one's tax burden within the limits of the law.

Accepted Answer

A)  compliance; avoidance 
B)  compliance; evasion 
C)  compliance; hedging 
D)  avoidance; evasion 
A)  compliance; avoidance 
B)  compliance; evasion 
C)  compliance; hedging 
D)  avoidance; evasion

Question 12

Suppose that you respond to an income tax increase by claiming false deductions.This is an example of:

Accepted Answer

A)  reporting effect. 
B)  income exclusion effect. 
C)  compliance effect. 
D)  direct effect. 
A)  reporting effect. 
B)  income exclusion effect. 
C)  compliance effect. 
D)  direct effect.

Question 13

If the penalties associated with tax evasion are increased and the risk of being caught evading taxes increases,which of the following statements is TRUE,other things held constant?

Accepted Answer

A)  The marginal cost of evading taxes is decreased for any given level of unreported income. 
B)  The marginal cost of evading taxes is increased for any given level of unreported income. 
C)  More tax evasion occurs. 
D)  The two changes cancel each other out so there is no change in tax evasion. 
A)  The marginal cost of evading taxes is decreased for any given level of unreported income. 
B)  The marginal cost of evading taxes is increased for any given level of unreported income. 
C)  More tax evasion occurs. 
D)  The two changes cancel each other out so there is no change in tax evasion.

Question 14

Tax ______ is legal; tax _______ is illegal.

Accepted Answer

A)  avoidance; compliance 
B)  compliance; avoidance 
C)  evasion; avoidance 
D)  avoidance; evasion 
A)  avoidance; compliance 
B)  compliance; avoidance 
C)  evasion; avoidance 
D)  avoidance; evasion

Question 15

Compared to the current system,a consumption tax is expected to improve:

Accepted Answer

A)  efficiency and horizontal equity. 
B)  horizontal and vertical equity. 
C)  efficiency and vertical equity. 
D)  efficiency,horizontal equity,and vertical equity. 
A)  efficiency and horizontal equity. 
B)  horizontal and vertical equity. 
C)  efficiency and vertical equity. 
D)  efficiency,horizontal equity,and vertical equity.

Question 16

Which of the following statements is NOT true regarding the empirical evidence on tax evasion?

Accepted Answer

A)  In the United States,the tax gap (the difference between the tax owed and taxes paid)is fairly low,similar to other developed countries. 
B)  The tax evasion rate is generally positively correlated with the level of economic development. 
C)  The appeals to conscience had no effect on the compliance rate in the United States. 
D)  Audit threats increased reported income for lower- and middle-class families in the United States. 
A)  In the United States,the tax gap (the difference between the tax owed and taxes paid)is fairly low,similar to other developed countries. 
B)  The tax evasion rate is generally positively correlated with the level of economic development. 
C)  The appeals to conscience had no effect on the compliance rate in the United States. 
D)  Audit threats increased reported income for lower- and middle-class families in the United States.

Question 17

The share of total national tax revenue from consumption taxation averages approximately ________ in OECD (Organisation for Economic Co-operation and Development)nations.

Accepted Answer

A)  2% 
B)  15% 
C)  30% 
D)  52% 
A)  2% 
B)  15% 
C)  30% 
D)  52%

Question 18

The flat tax was popularized by:

Accepted Answer

A)  Hall and Rabushka in 1981. 
B)  Haig and Simons in 1986. 
C)  Domar and Musgrave in 1944. 
D)  Roth and Rossotti in 1997. 
A)  Hall and Rabushka in 1981. 
B)  Haig and Simons in 1986. 
C)  Domar and Musgrave in 1944. 
D)  Roth and Rossotti in 1997.

Question 19

Explain why a simpler tax system,such as Herman Cain's 9-9-9 Plan,has not received support from Democrats or Republicans.

Accepted Answer

Republicans were worried that granting t

Question 20

Tax capitalization is defined by which description?

Accepted Answer

A)  emphasizing the importance of taxation over spending 
B)  the change in wages due to taxation 
C)  the change in asset prices due to a change in the tax levied on the returns from the asset 
D)  the movement away from the taxation of income and toward the taxation of consumption 
A)  emphasizing the importance of taxation over spending 
B)  the change in wages due to taxation 
C)  the change in asset prices due to a change in the tax levied on the returns from the asset 
D)  the movement away from the taxation of income and toward the taxation of consumption

Exam 25: Fundamental Tax Reform and Consumption Tax

In the theory of tax evasion,what is the marginal benefit of evading taxes?

Suppose that,as a result of an income tax rate increase,you pay more tax on the same amount of income.This is an example of which channel through which tax rate changes can change tax revenues?

A sales tax is a tax on ________; a payroll tax is a tax on __________.

Suppose the personal income tax rate is increased and the risk of getting caught for evading taxes increases.As a result,the marginal benefit of tax evasion _____ for any given level of unreported income and the level of tax evasion _____.

Which statement is NOT true of tax evasion?

Which definition best describes tax shelters?

A consumption tax levied on the increase in the value of a good at each stage of production is called a(n):

Which of the following is an advantage of a consumption tax relative to the current tax system?

Under the Hall-Rabushka flat tax proposal:

Suppose that you respond to an income tax increase by giving more money to charity (which is tax deductible).This is an example of:

Tax _______ is willingness to pay taxes; tax ________ is the result of efforts to reduce one's tax burden within the limits of the law.

Suppose that you respond to an income tax increase by claiming false deductions.This is an example of:

If the penalties associated with tax evasion are increased and the risk of being caught evading taxes increases,which of the following statements is TRUE,other things held constant?

Tax ______ is legal; tax _______ is illegal.

Compared to the current system,a consumption tax is expected to improve:

Which of the following statements is NOT true regarding the empirical evidence on tax evasion?

The share of total national tax revenue from consumption taxation averages approximately ________ in OECD (Organisation for Economic Co-operation and Development)nations.

The flat tax was popularized by:

Explain why a simpler tax system,such as Herman Cain's 9-9-9 Plan,has not received support from Democrats or Republicans.

Tax capitalization is defined by which description?

Why Study Public Finance

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Social Insurance- the New Function of Government

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Health Insurance I- Health Economics and Private Health Insurance

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Income Distribution and Welfare Programs

Taxation- How It Works and What It Means

The Equity Implications of Taxation- Tax Incidence

Taxes on Labor Supply

Taxes on Savings

Taxes on Risk Taking and Wealth

Taxation of Business Income

Filters

A sales tax is a tax on ; a payroll tax is a tax on __.

Suppose the personal income tax rate is increased and the risk of getting caught for evading taxes increases.As a result,the marginal benefit of tax evasion _ for any given level of unreported income and the level of tax evasion _.

Tax _ is willingness to pay taxes; tax __ is the result of efforts to reduce one's tax burden within the limits of the law.

Tax is legal; tax _ is illegal.