Explain the connection between tax burdens and elasticities

Assignment Help Business Economics

Reference no: EM13836952

1 a. Construct a numerical example to show that the exclusion of municipal bond interest from income taxation is equivalent to a government subsidy of state and local capital spending.

b. Explain why it costs the government (taxpayers) more to subsidize this activity through the exclusion of municipal bond interest than it would be to simply give the subsidy directly.

2a. Explain what economists mean when they classify taxes as being progressive, proportional or regressive.

b. How would you classify a tax in which every person paid $1000?

c. How would you classify a tax in which the first $50,000 of income was tax exempt and then anything above $50,000 was taxed at a rate of 20%?

d. How would you classify a tax in which every person paid 8% of their income? Explain

3. A nation has a tax rate of 20% on the first $20,000 of taxable income, 30% on the next $30,000, 40% on the next $20,000 and then 50% on all taxable income above $70,000.

a. Find the ATR of someone with a taxable income of $100,000.

b. How much is a tax credit of $1000 worth to someone with a taxable income of $40,000?

c. How much is a tax credit of $1000 worth to someone with a taxable income of $60,000?

d. How much would a $1000 deduction be worth to someone with a taxable income of $40,000?

e. How much would a $1000 deduction be worth to someone with a taxable income of $60,000?

4. Assume you believe that income is a good proxy for ability to pay. What decisions what you have to make in order to make this operational?

5. Explain the connection between

a. tax burdens and elasticities

b. excess burden and elasticity

c. from the point of view of efficiency, is it better to tax items with a small or a large elasticity? Why?

6. The federal per unit excise tax on gasoline is increased and an industry analyst predicts that the increase will be entirely passed on to consumers. Show two cases in which the analyst would be correct. How likely is it that either of these two cases would occur in practice?

Reference no: EM13836952

Questions Cloud

Regression coefficients partial-net regression coefficients : What is meant when we refer to multiple regression coefficients as partial or net regression coefficients?

Designed to detect multicollinearity in regression model : What statistic is designed to detect multicollinearity in a regression model?

State can restrict-regulate your use of real property : What is required before the state can restrict/regulate your use of real property? Why does the law require special steps be taken for the formation of joint tenancy?

Decreases holding everything else constant : What happens to the regression F value if R2 decreases holding everything else constant?

Explain the connection between tax burdens and elasticities : Construct a numerical example to show that the exclusion of municipal bond interest from income taxation is equivalent to a government subsidy of state and local capital spending. Assume you believe that income is a good proxy for ability to pay. Wha..

The estimated regression equation : The estimated regression equation is:

Cash flow diagram-utilize functional notation : A construction manager just starting in private practice needs a van to carry crew and equipment. She can lease a used van for $3,738 per year, paid at the beginning of each year, in which case maintenance is provide. Alternatively, she can buy a use..

Compare a mature industry vs. new innovation and technology : Contrast and Compare: A Mature Industry vs. New Innovation and Technology. Explain the advantages of maturity as well as the possible limitations. Then, compare that to the same issues for a new company.

Joint products-absolute value : For a monopolist that engages in price discrimination when the price elasticity in market 1 is less (in absolute value) than in market 2, the optimal price in market 1 will exceed the optimal price in market 2. Joint products are_____

User Account

All Pages