Study Questions For The Fifth Exam

 

Public Sector Economics

 

 

These questions are not designed to take the place of studying your notes and the reading assignments.  Do not e-mail me and ask me to answer all or some of these questions for you.  If you have missed class, it is your responsibility to get the notes from another student.  Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not.  Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first.  Make sure you have done all of the reading assigned.  Also, pay attention to the homework questions and the exercises we have done in class when studying.

 

 

 

Topic:  Tax Analysis:  The Basics

  1. 1.  What is a tax according to economists?

  2. 2.  Why do taxes exist?

  3. 3.  What is a user fee?  Give an example.  What's the difference between a user fee and a tax?

  4. 4.  What is a benefit tax?  Give example.

  5. 5.  What are some ways by which economists classify taxes?

  6. 6.  What is an indirect tax?  Direct tax?

  7. 7.  How is a head tax or a lump sum tax different from an income tax in terms of its impact on people's behavior?

  8. 8.  What are factor taxes?  Example? 

  9. 9.  What are selective taxes?  General taxes?  Examples?

  10. 10.  What is a tax base?

  11. 11.  What is a tax-inclusive base?  Example?

  12. 12.  What is a tax-exclusive base?  Example?

  13. 13.  What is an income tax?

  14. 14.  Sales tax?

  15. 15.  Excise tax?

  16. 16.  What are the five criteria we discussed for judging a tax? 

  17. 17.  What are the 11 questions we discussed when analyzing a tax? 

  18. 18.  With respect to taxes:  what are compliance costs?  Administrative costs?  Visibility of the tax?  Examples?

 

Topic:  Tax Incidence

  1. 1.  What is the statutory incidence of a tax? 

  2. 2.  What is the economic incidence of a tax?

  3. 3.  What model might be used to analyze the economic incidence of a tax?

  4. 4.  What is tax shifting?  Example.

  5. 5.  What is the absolute versus the differential incidence of a tax?  Example?

  6. 6.  Explain tax incidence by income group?

  7. 7.  What is a progressive tax? 

  8. 8.  Regressive? 

  9. 9.  Proportional?  Examples of each?

  10. 10.  What is the regional incidence of a tax? 

  11. 11.  Generational incidence?

Be prepared to analyze some different tax rules with respect to their economic incidence!! 

 

 

Topic:  Applications - The Incidence of the Excise Tax, the Corporate Income Tax and the Payroll Tax

  1. 1.  Know how to analyze (graphically and in words) the incidence of an excise tax.  What does the incidence depend upon? (GRAPH)

  2. 2.  Analyze who would pay an excise tax in each of these four extreme cases (and why):  perfect elasticity (supply or demand) and perfect inelasticity (supply or demand).  (GRAPHS)

  3. 3.  Where is the "welfare" loss from consumers (graphically) and where is the "welfare" loss from producers (graphically)?  Why does the loss occur.  Under which circumstance(s) would there not be a welfare loss due to the imposition of the excise tax? (GRAPH)

  4. 4.  What are administrative costs of the excise tax?

  5. 5.  What are compliance costs of the excise tax?

  6. 6.  What does the magnitude of the welfare cost of an excise tax depend upon (two answers here)?

  7. 7.  Explain why, when a corporate income tax is instituted, the return from corporate capital -- as well as non-corporate capital -- falls.  Be able to explain using a numerical example.

  8. 8.  Does the corporate income tax cause a reallocation of capital resources in the economy?  Explain.

  9. 9.  Explain when the incidence of a corporate income tax would fall on consumers -- be specific about which consumers will pay the tax.

  10. 10.  Explain why the burden of the corporate income tax might fall on workers in the short run.

  11. 11.  Explain why a shift out of capital (and a drop in capital investment in general) would hurt workers in the longer run.

  12. 12.  What assumptions are being made in the analysis above?

  13. 13.  The above analysis regarding corporate vs. non-corporate capital can also be applied to domestic vs. foreign capital.  Explain.  From you reading.

  14. 14.  We listed 6 different ways that the corporate income tax could distort resource allocation -- be prepared to explain them.

  15. 15.  Know how to analyze (graphically and in words) the incidence of a payroll tax. (GRAPH)

  16. 16.  What determines how much of the incidence falls on workers vs. employers?

  17. 17.  Can congress then distribute the burden of a payroll tax?  Explain.

MAKE SURE YOU GO OVER THE HOMEWORK, IN CLASS EXERCISES AND READING.