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(solution) need written answers for study questions in economics of taxation

need written answers for study questions in economics of taxation

1. ?Small corporations should face lower corporate tax rates than large businesses, just as individual with


low incomes should face lower income tax rates than those with high income.? Analyze and evaluate this




2. In what sense does the corporate income tax subject corporate profits to double taxation? What are the


consequences of this for the incidence and efficiency of the corporate tax?


3. Compare the bases of the Hall-Rabushka flat tax, a broad-based general sales tax, and a consumptionbased VAT.


4. The incidence of the sales tax or VAT over the lifetime of taxpayers is less regressive as compared to


the incidence in a particular year. Explain.


5. The so-called flat tax (as proposed by Hall and Rabushka and advocated by Steve Forbes) is actually a


consumption-based tax and not an income tax. Explain.


6. What is the difference between an expenditure (cash-flow) tax and a sales tax? What is the difference


between an expenditure tax (cash-flow) and an income tax?


7. If we had a truly comprehensive individual income tax (based on the Haig-Simons approach), there


would be no reason to have a corporate income tax or estate and gift taxes. Explain and evaluate this




8. How would business interest payments and receipts be accounted for in a flat tax (as proposed by Hall


and Rabushka)? How would depreciation be dealt with? Explain.


9. Briefly define and compare the following taxes: estate taxes, inheritance taxes, and gift taxes. How are


the gift and estate tax related in the United States?


10. What advantages would a comprehensive expenditure tax (or cash-flow tax) have over a more narrow


consumption taxes such as sales or value added taxes? What would be the disadvantages?


11. Explain why the corporate income tax may reduce the return on all investment including that in the


noncorporate sector? Why does a corporate income tax create an excess burden?


12. A value added tax and a Hall-Rabushka flat tax appear to be quite different in the way they are applied


and administered, yet they are very similar in their economic impacts? Explain.


13. The real property tax is often considered to be regressive by the public. Most economists do not


accept this assertion. Briefly explain why.


14. What would be the problems of a transition from an income tax to a consumption tax? If the transition


protected all those who might be harmed, what would be the impact on tax rates and on possible


economic efficiency gains from the change?


15. Explain the factors the tax authorities might consider in the attempt to control tax evasion? Should


they strive to eliminate evasion? 16. Explain how inflation can create problems in regard to the taxation of the income, especially in


regard to the income from capital (e. g., interest, dividends, and capital gains). How might these


problems be dealt with?


17A. Briefly review the possible theoretical impacts of income taxation on work effort. Summarize


the results of empirical studies of the question.


17B. The impact of a proportional income tax on work effort is theoretically ambiguous. Explain.


How might the different responses to increased taxes impact the excess burden of the tax?


18. The impact of a proportional income tax on the return on savings is theoretically ambiguous.




Show the potential excess burden from such a tax.


19. Optimal tax theory provides a detailed guideline for real world tax policy.


Agree and disagree and explain. Choose 5 questions plus question 11. (6 total)


1. Transition issues:


Designing a new tax system is a different process from changing an existing one to a different approach.


Discuss this issue in the context of a move from an income tax to a consumption based tax.


2. The real property tax is often considered to be regressive by the public. Most economists do not accept


this assertion. Briefly explain why.


3. How would potential avoidance and evasion activities impact the design of a tax system? How does


this relate to the so-called Laffer curve that deals with tax rates and tax revenue?


4. Economists often concentrate on issue of economic efficiency in analyzing tax systems. What other


factors might impact real world tax decision-making in addition to efficiency?


5. What is the advantage of the decentralized provision by governments where tastes differ greatly among


different geographic areas? Show. Are there disadvantages?


6. What are the problems with the use of a corporate income tax along with an individual income tax?


How would these problems be addressed?


7. The Haig-Simons approach is widely used as a guide for defining income. What would be the


administrative problems in attempting to use this approach in the real world? Why might people disagree


with the use of the Haig-Simons definition?


8. Discuss the options that might be available to reduce the inefficiency from taxation? How might these


approaches impact equity issues?


9. There are two approaches to taxing consumption. One approach is to exclude saving from taxation and


the other is to exclude the returns on saving from taxation. Explain. (Hint: Two examples are the


traditional vs. the Roth IRA and an expenditure tax (cash-flow tax) vs. Hall-Rabuska flat tax.)


10. Potential mobility of the tax base is an important issue in state-local taxation and international


taxation. Explain how this may impact decision-making in regard to tax policy.


Must be answered:


11. Make up and answer a question of your own choosing about tax issues. You will be graded both


on the question and the answ


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Sep 13, 2020





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