Efficient and Equitable Taxation

• Suppose that all commodities, including leisure, are taxed at a rate of 25%. What is the equivalent value of time endowment tax that is equivalent to the uniform commodity tax rate on all goods?

  20%
• What is marginal excess burden?

  The additional excess burden from raising a tax by a small amount
• What is the marginal revenue of tax?

  The additional tax revenue from raising tax by a small amount
• According to the Ramsey Rule, if the ratio of $MEB/MR$for good x is higher than that for good y,then which good has the higher Excess Burden


  Good X
• Should optimal commodity tax rates be higher/lower on goods whose compensated demands are less elastic?

  Higher
• Suppose the compensated demand elasticity for good x is $e_x=$$0.4$ and the compensated demand elasticity for y is $e_y=$$0.8$. What good should be taxed more?


  X
• Suppose exl=0.1 and eyl=0.17. Which good is more of a complement with leisure?

  X
• True/False: We tax goods that are more complementary with leisure higher

  True
• What is vertical equity?

  Fairly distributing tax burdens across people with different abilities to pay
• True/False: Goods disproportionately consumed by the rich may be taxed at a higher rate even if their compensated demand is more elastic

  True
• Should the MTR for rich people be higher/lower when the compensated elasticity of labour supply is higher

  lower
• What is the poverty trap

  The extreme disincentive to work for those with low incomes in the traditional welfare system
• What are the types of costs for running the tax system

  Compliance and administrative
• True/False: Tax Avoidance is Illegal

  False
• What is Tax Avoidance

  Changing your behaviour to reduce tax liability
• If the tangency point is above the 45-degree line what does it mean for the taxes being paid relative to the benefits

  You're paying more in taxes than you receive in benefits
• If the tangency point is below the 45 degree line what does it mean for the taxes being paid relative to the benefits

  Youre receiving more benefits than you are paying in taxes