MICROECONOMICS(LL)COMPANION
21st Edition
ISBN: 9781260713541
Author: McConnell
Publisher: MCG
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Question
Chapter 20, Problem 7DQ
To determine
The benefit received and the ability to pay principle in a tax system.
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Assume that the federal government replaces the federal income tax with a national sales tax on all consumption expenditures. Analyze the impact of this tax change on taxation efficiency and equity? Note that the federal government already collects a nationwide consumption tax through excise taxes on gasoline, liquor and tobacco.
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Chapter 20 Solutions
MICROECONOMICS(LL)COMPANION
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- Table 27-1 Y = C + I + G C = 500 + 0.8(Y − T) I = 300 G = 700 T = 0.25Y Table 27-1 Y = C + I + G C = 500 + 0.8(Y−T) I = 300 G = 700 T = 0.25Y Refer to Table 27-1. What is the level of tax revenues in this model? a. 1,000 b. 937.5 c. 437.5 d. 950 e. 945.5arrow_forwardThe country of Aquilonia has a tax system identical to that of Canada. Suppose an Aquilonian bought a parcel of land for $10,000 in 1960 when the price index equalled 100. In 2019, the person sold the land for $100,000, and the price index equalled 500. If the person must pay 20 percent of any capital gain in taxes, what is the after-tax real capital gain (in 2019 dollars) on the land? a. $72,000 b. $32,000 c. $6400 d. $62,000arrow_forward4. Suppose that there are two households in the economy, A and B, that they face the same wage rate w, and that the government initially uses a proportional income tax according to which each household must pay a fraction t of its labor income as income tax. Assume that given this tax scheme household A chooses to work full time while household B chooses to work part time. Now suppose that the government is interesting in studying the impact of changing the tax system to a progressive tax system where the household work- ing full time would pay a tax rate th >t while the household working part time would pay a rate ti < t. (a) Draw a graph of the impact of this change on the budget constraint that households face with the two different tax systems. (b) What would such a change in the tax system imply for the optimal choice of the two households?arrow_forward
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