LECTURE 6

What is meant by tax shifting? Using graphical analysis, compare the effects of a taxplaced on the suppliers of a good with a tax of the same magnitude placed on the demanders.

Evaluate the following statement: The theory of optimal commodity taxation argues that equal tax rates should be set across all commodities so as to maximize efficiency by“smoothing taxes.”

What is the Ramsey rule? Explain the logic behind the Ramsey rule.

Evaluate the following statement: Some economists have proposed replacing the income tax with a consumption tax to avoid taxing savings twice. This is a good policy both in terms of efficiency and equity.

What makes a tax efficient? Discuss some of the issues involved in the design of taxsystems?

Can a tax have an excess burden if the supply curve in the market is completely inelastic? Explain, using labor supply as an example. Using your explanation to illustrate exactly what gives rise to the excess burden of taxation.

Discuss the trade-offs that take place between equity and efficiency aspects of tax policy.How might these conflicts be resolved?

Explain the ability-to-pay principle of taxation. What are its strengths and weaknesses?

How is politics likely to influence the design of tax policy? Discuss some of the wayswhich political influences over tax policy can be minimized.

Will people work more or less if income tax rates are increased? Fully explain thearguments on both sides of the issue. Which arguments do you think are correct, and why?

What is the Laffer curve? Explain why it is shaped the way it is. Why might a countrychoose a tax system that places it on the downward-sloping portion of the curve?

Explain how the current US tax system places a double tax on saving. What are the advantages and disadvantages of a flat tax when compared with the current system?

Is there any difference in principle between the excess burden of direct and indirect taxes?

Why is public finance through government borrowing deferred taxation? Why isgovernment borrowing – or bond financing – an application of the benefit principle oftaxation?

How is progressive, regressive, and proportional taxation defined? Is an indirect or a direct tax necessarily regressive?

What is the equal-sacrifice principle of socially just taxation? What are your views on theequal-sacrifice principle?

Does the personal income-tax structure tend to change with electoral results that favorone political party over another? Do the constituencies of the main political parties havedifferent views of the ideal personal income-tax structure?

Compare the vertical and horizontal equalities of social just taxation. In your view, whichequality is more important?

Why do most analysts assume that payroll taxes in the US are borne by workers rather than by employers?