Question 1

Tax policy typically has the goals of efficiency and equity. These goals are frequently:

Accepted Answer

A)  met only by a lump-sum tax 
B)  consistent with the goals of vertical equity 
C)  unable to be both fulfilled simultaneously 
D)  achieved when company tax rates are very high

Question 2

If higher income taxpayers pay a higher percentage of their income in taxes, then the tax system is classed as progressive.

Accepted Answer

A) True 
 B)False

Question 3

Tax evasion is:

Accepted Answer

A)  facilitated by legal deductions to taxable income 
B)  the same as tax avoidance 
C)  recommended by the Australian Accounting Standards Board 
D)  illegal

Question 4

'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 5

Which of the following statements is most correct?

Accepted Answer

A)  deadweight loss is the efficiency that a tax creates as people allocate resources according to market incentives 
B)  deadweight loss is the inefficiency that a tax creates as people allocate resources according to market incentives 
C)  deadweight loss is the inefficiency that a tax creates as people allocate resources according to the tax incentives 
D)  deadweight loss is the efficiency that a tax creates as people allocate resources according to the tax incentives

Question 6

Road construction funded by taxes on petrol is an example of the benefits principle applied to the equity of the tax burden.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Two families, the Smiths and the Jones, live on the Gold Coast, Queensland, and have identical incomes. The Smiths deduct $5000 from their taxable income for mortgage interest paid during the year, while the Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies:

Accepted Answer

A)  an application of the benefits principle of taxation 
B)  a violation of horizontal equity 
C)  a violation of vertical equity 
D)  an application of egalitarian tax rules

Question 9

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements regarding the company income tax is most correct?

Accepted Answer

A)  equity considerations are more easily satisfied than efficiency considerations when company income is taxed 
B)  the company income tax does not distort the incentives of customers 
C)  the company income tax is the best example of why the flypaper theory of tax incidence is correct 
D)  many economists believe that workers and customers bear much of the burden of the company income tax

Question 12

If marginal tax rates increase, the:

Accepted Answer

A)  deadweight loss from taxes is unaffected 
B)  deadweight loss from taxes will be reduced 
C)  deadweight loss from taxes will rise 
D)  average tax rate will be falling

Question 13

Suppose the government imposes a tax of 10 per cent on the first $40 000 of income and 20 per cent on all incomes above $40 000, what are the tax liability and the marginal tax rate for a person whose income is $30 000?

Accepted Answer

A)  both are 10 per cent 
B)  10 per cent and $2000, respectively 
C)  $3000 and 10 per cent, respectively 
D)  $3000 and 20 per cent, respectively

Question 14

When the marginal tax rate equals the average tax rate, the tax is:

Accepted Answer

A)  proportional 
B)  progressive 
C)  regressive 
D)  egalitarian

Question 15

Taxes that alter supply and demand are consistent with the 'flypaper theory' of taxation.

Accepted Answer

A) True 
 B)False

Question 16

An excise tax on alcohol and tobacco is viewed as an unfair tax on the poor by some critics.

Accepted Answer

A) True 
 B)False

Question 17

Complex tax laws result from political processes.

Accepted Answer

A) True 
 B)False

Question 18

Incentives to work and save are reduced when:

Accepted Answer

A)  Pigovian taxes are implemented 
B)  consumption taxes replace income taxes 
C)  income taxes are higher 
D)  all of the above are true

Question 19

Costs to taxpayers include which of the following? (i) transfer of money from the taxpayer to the government
(ii) deadweight losses
(iii) administrative burdens

Accepted Answer

A)  (i) only 
B)  (i) and (iii) only 
C)  (ii) and (iii) only 
D)  (i), (ii) and (iii)

Question 20

Taxable income is based on total income and excludes any deductions due to expenses or the number of dependents.

Accepted Answer

A) True 
 B)False

Exam 12: The Design of the Tax System

Tax policy typically has the goals of efficiency and equity. These goals are frequently:

If higher income taxpayers pay a higher percentage of their income in taxes, then the tax system is classed as progressive.

Tax evasion is:

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

Which of the following statements is most correct?

Road construction funded by taxes on petrol is an example of the benefits principle applied to the equity of the tax burden.

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

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

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

Which of the following statements regarding the company income tax is most correct?

If marginal tax rates increase, the:

Suppose the government imposes a tax of 10 per cent on the first $40 000 of income and 20 per cent on all incomes above $40 000, what are the tax liability and the marginal tax rate for a person whose income is $30 000?

When the marginal tax rate equals the average tax rate, the tax is:

Taxes that alter supply and demand are consistent with the 'flypaper theory' of taxation.

An excise tax on alcohol and tobacco is viewed as an unfair tax on the poor by some critics.

Complex tax laws result from political processes.

Incentives to work and save are reduced when:

Costs to taxpayers include which of the following? (i) transfer of money from the taxpayer to the government (ii) deadweight losses (iii) administrative burdens

Taxable income is based on total income and excludes any deductions due to expenses or the number of dependents.