What makes a tax "efficient"? Describe the efficiency properties of a lump sum tax
Under what conditions might a regular unit tax approximate a lump-sum tax? List one trade-off facing policymakers in attempting to minimized the excess burden of taxation.
A tax is considered efficient if it minimizes the welfare deadweight loss of taxation. A lump sum tax is considered to be the most efficient tax because it completely eliminates the deadweight loss of taxation because there is no way an individual could change her behavior to avoid the tax. Other taxes could approximate a lump sum tax if they were placed in a market with a perfectly inelastic supply or demand curve. One way to minimize the deadweight loss of taxation is to tax inelastic goods. However, taxing inelastic goods such as health care expenditures often can conflict with equity goals.
You might also like to view...
A real interest rate that causes the quantity of saving supplied to be equal to the quantity of saving (or investment) demanded is an example of the:
A. principle of comparative advantage. B. equilibrium principle. C. principle of increasing opportunity cost. D. scarcity principle.
If real GDP is less than nominal GDP and prices have not changed from the base-year prices, then production must have declined
Indicate whether the statement is true or false
A perfectly competitive firm is producing more than the profit-maximizing amount of its product. You can conclude that its
A) total cost exceeds its total revenue. B) average total cost exceeds the price of the product. C) marginal revenue is less than the price of the product. D) marginal cost exceeds the price of the product.
What are two ways that governments can prevent banking panics?
What will be an ideal response?