Chapter 2

Question 1

Tax Revenue = ?

Answer 1

Tax Base x Tax Rate

Question 2

Sufficient

Answer 2

Tax revenues >= Expenditures

Question 3

Static forecasting

Answer 3

Behavior doesn’t change

Question 4

Dynamic forecasting

Answer 4

Behavior changes are expected

Question 5

Income effect

Answer 5

As tax rates increase, people will work more

Question 6

Substitution effect

Answer 6

As tax rate increases, people will work less (sub with more leisure)

Question 7

Convenient

Answer 7

Easy to pay for the taxpayer and easier to collect for the government.
Ex: Sales Tax

Question 8

Efficient- Classical

Answer 8

Tax neutral, doesn’t affect decisions

Question 9

Efficient - Keynesian

Answer 9

Tax policy drives behaviors

Question 10

Fair

Answer 10

Individuals with the same ability to pay, pay the same tax
- horizontal equity = base
- vertical equity = rate (inc $ = inc tax)

Question 11

Progressive tax

Answer 11

Higher income = Higher tax rates
Marginal > Average

Question 12

Proportional (flat) tax

Answer 12

Same rate for all.
Marginal = Average

Question 13

Regressive tax

Answer 13

Higher income = Lower tax rates
Ex: social security
Marginal < Average

Question 14

Marginal Tax Rates

Answer 14

Tax on the next dollar

Question 15

Average Tax Rates

Answer 15

Total tax/total income

Question 16

What relates to vertical equity

Answer 16

The 3 tax structures

Question 17

Vertical/horizontal equity has to do with

Answer 17

Fairness