Question 1

If we are trying to gauge how much the income tax system distorts incentives, then:

Accepted Answer

A) the average tax rate is the most meaningful measure 
B) the distortion is entirely captured in the administrative burden of the tax 
C) total tax revenue collected is the most meaningful measure 
D) the marginal tax rate is the most meaningful measure

Question 2

Tax evasion is when a person will try to minimise their marginal tax rate.

Accepted Answer

A) True 
 B)False

Question 3

'Deadweight losses are only incurred when taxes distort incentives'.Evaluate this statement.

Accepted Answer

The answer of 'Deadweight losses are only incurred when taxes...

Question 4

Suppose the government imposes a tax of 10 per cent on the first $24 000 of income and
20 per cent on all incomes above $24 000, what are the tax liability and the average tax rate for a person whose income is $48 000?

Accepted Answer

A) 10 per cent and 20 per cent, respectively 
B) 10 per cent and $24 000, respectively 
C) $7200 and 15 per cent, respectively 
D) $7200 and 20 per cent, respectively

Question 5

Harry's average tax rate on his November income is 15 per cent.The marginal tax rate on his December income of $10 000 exceeds his average tax rate.The tax liability on his December income:

Accepted Answer

A) will be less than $1500 
B) will exactly equal $1500 
C) will exceed $1500 
D) from the information provided, any of the answers above could be correct

Question 6

Taxes create deadweight losses because they distort incentives.

Accepted Answer

A) True 
 B)False

Question 7

One reason why deadweight losses are so difficult to avoid is that:

Accepted Answer

A) administrative burden and deadweight loss reflect a clear trade-off to policymakers 
B) income taxes are not paid by everyone 
C) consumption taxes must be universally applied to all commodities 
D) taxes affect the decisions that people make

Question 8

Which of the following examples would demonstrate the importance of indirect effects of taxation?

Accepted Answer

A) a sales tax on expensive fur coats 
B) a sales tax that excludes purchase made over the Internet 
C) a tax that universities place on textbooks purchased through the university-owned bookstore 
D) all of the above

Question 9

State and local governments:

Accepted Answer

A) are funded entirely by their own tax base 
B) receive the majority of their tax revenues from company income tax 
C) are generally not responsible for collecting sales tax 
D) receive some of their funds from the federal government

Question 10

Governments tax company income primarily on the basis of:

Accepted Answer

A) profit 
B) its total revenue 
C) pollution levels 
D) all of the above

Question 11

Australia's tax system:

Accepted Answer

A) is mainly made up of lump sum taxes 
B) imposes no deadweight loss 
C) satisfies the flypaper principle 
D) is considered vertically equitable

Question 12

To gauge the extent to which the tax system distorts incentives, the marginal tax rate is the appropriate tax rate to use.

Accepted Answer

A) True 
 B)False

Question 13

Explain why the New Zealand 15% GST is viewed as regressive.

Accepted Answer

The answer of Explain why the New Zealand 15% GST...

Question 14

The resource cost of tax compliance is:

Accepted Answer

A) not considered in calculations of tax burden 
B) solely a product of company income taxes 
C) solely a product of property taxes 
D) included in the administrative burden of a tax

Question 15

The claim that all citizens should make an 'equal sacrifice' to support government programs is usually associated with:

Accepted Answer

A) the ability-to-pay principle 
B) the benefits principle 
C) efficiency arguments 
D) regressive tax arguments

Question 16

The ability-to-pay principle states that people should pay taxes based on the benefits they receive from government services.

Accepted Answer

A) True 
 B)False

Question 17

The average tax rate is total taxes paid divided by total income.

Accepted Answer

A) True 
 B)False

Question 18

Describe the benefits principle of taxation.What might some of the difficulties of implementing a tax system based on this principle be?

Accepted Answer

The answer of Describe the benefits principle of taxation.What might...

Question 19

The extra tax that is paid by a taxpayer on their next additional dollar of income is called:

Accepted Answer

A) a deadweight loss 
B) the marginal tax rate 
C) a consumption tax 
D) the average tax rate

Question 20

Vertical equity states that taxpayers with a greater ability to pay taxes should contribute a decreasing proportion of each increment in income to taxes.

Accepted Answer

A) True 
 B)False

Exam 12: The Design of the Tax System

If we are trying to gauge how much the income tax system distorts incentives, then:

Tax evasion is when a person will try to minimise their marginal tax rate.

'Deadweight losses are only incurred when taxes distort incentives'.Evaluate this statement.

Suppose the government imposes a tax of 10 per cent on the first $24 000 of income and 20 per cent on all incomes above $24 000, what are the tax liability and the average tax rate for a person whose income is $48 000?

Harry's average tax rate on his November income is 15 per cent.The marginal tax rate on his December income of $10 000 exceeds his average tax rate.The tax liability on his December income:

Taxes create deadweight losses because they distort incentives.

One reason why deadweight losses are so difficult to avoid is that:

Which of the following examples would demonstrate the importance of indirect effects of taxation?

State and local governments:

Governments tax company income primarily on the basis of:

Australia's tax system:

To gauge the extent to which the tax system distorts incentives, the marginal tax rate is the appropriate tax rate to use.

Explain why the New Zealand 15% GST is viewed as regressive.

The resource cost of tax compliance is:

The claim that all citizens should make an 'equal sacrifice' to support government programs is usually associated with:

The ability-to-pay principle states that people should pay taxes based on the benefits they receive from government services.

The average tax rate is total taxes paid divided by total income.

Describe the benefits principle of taxation.What might some of the difficulties of implementing a tax system based on this principle be?

The extra tax that is paid by a taxpayer on their next additional dollar of income is called:

Vertical equity states that taxpayers with a greater ability to pay taxes should contribute a decreasing proportion of each increment in income to taxes.