Deck 10: Introduction to Government Finance 

Question 1

The gasoline tax is an example of a general tax on consumption.

Answer 1

False

Question 2

For a proportional tax, the marginal tax rate is always equal to the average tax rate.

Answer 2

True

Question 3

Tax avoidance is an illegal activity in the United States.

Answer 3

False

Question 4

If horizontal equity is achieved in taxation,

A)vertical equity will also be achieved.
B)individuals of equal economic capacity will pay equal taxes.
C)a flat-rate tax will be used.
D)the tax system will not result in losses in efficiency in markets.

Question 5

The user charge for a congestible public good should be zero at all times.

Question 6

A flat income tax is an example of a selective tax.

Question 7

A flat-rate income tax is a proportional tax on an income base.

Question 8

An increase in marginal tax rates is likely to increase tax evasion.

Question 9

Horizontal equity is achieved when individuals of the same economic capacity pay the same amount of taxes over a given period.

Question 10

According to the benefit principle,

A)taxes should be distributed according to ability to pay.
B)user charges are an ideal source of finance for government goods and services.
C)the progressive income tax represents the ideal way of distributing taxes among citizens.
D)flat-rate taxes are always the best kind.

Question 11

Tax evasion would be less of a problem if tax rates were lowered.

Question 12

The federal government finances only half of its expenditures with taxes.

Question 13

Zero prices for price-excludable government services provide benefits only to the poor.

Question 14

The marginal tax rate for a payroll tax is 7 percent on all wages up to $60,000 per year.The marginal tax rate for wages in excess of $60,000 per year is zero.The payroll tax is therefore a regressive tax.

Question 15

Most studies indicate that state-run lotteries are equivalent to a progressive tax on gambling.

Question 16

The marginal tax rate will eventually exceed the average tax rate if the tax rate structure is propor?tional.

Question 17

The average tax rate and marginal tax rate are the same under a progressive tax rate structure.

Question 18

The benefit principle argues that the means of financing government goods and services should be linked to the benefits received from those goods and services.

Question 19

Taxes simultaneously ration and finance government goods and services.

Question 20

Government activity requires the reallocation of resources from government to private use.

Question 21

A proportional income tax has an average tax rate that:

A)is always less than the marginal tax rate.
B)always exceeds the marginal tax rate.
C)equals the marginal tax rate at first and then becomes less than the marginal tax rate.
D)always equals the marginal tax rate.

Question 22

A payroll tax taxes a worker's wages at 14 percent until the worker earns $60,000 per year.All labor earnings in excess of $60,000 are not subject to tax.The tax rate structure of the payroll tax is therefore:

A)proportional.
B)progressive.
C)regressive.
D)flat-rate.

Question 23

An excise tax is a:

A)general consumption tax.
B)selective consumption tax.
C)general wealth tax.
D)selective tax on wealth.

Question 24

A tax on real estate is a:

A)general wealth tax.
B)general consumption tax.
C)selective wealth tax.
D)selective income tax.

Question 25

Tax avoidance is a:

A)means of tax evasion.
B)means of decreasing taxes paid by adjusting behavior.
C)political process explicitly for the reduction of taxation.
D)means to avoid tax owed.

Question 26

How do taxes differ from prices? What are the major alternatives to taxes as sources of government finance? How does a progressive rate structure differ from a proportional rate structure?

Question 27

A 5-percent retail sales tax on all consumer purchases in a state is imposed.The sales tax is:

A)a flat-rate tax.
B)a tax with a regressive rate structure.
C)levied on an income base.
D)all of these are correct.

Question 28

Taxes are likely to affect:

A)market equilibrium.
B)political equilibrium.
C)the distribution of income.
D)all of these are correct.

Question 29

A bridge becomes congested after 100 vehicles per hour use it on any day.To achieve efficiency, a toll:

A)that charges all users of the bridge, no matter how many vehicles use it per hour, should be imposed.
B)on additional users in excess of 100 per hour should be imposed.
C)on all users should be imposed, if more than 100 users per hour are expected.
D)is not required.

Question 30

If the marginal tax rate is 20 percent under a proportional tax rate structure, the average tax rate:

A)should be 20 percent.
B)should be above 20 percent.
C)should be below 20 percent.
D)cannot be determined.

Question 31

Which of the following countries has the highest average tax rate relative to GDP?

A)Korea
B)Sweden
C)Iceland
D)United Kingdom

Question 32

If the average tax rate under a progressive tax rate structure is 35 percent, a possible marginal tax rate is:

A)30 percent.
B)25 percent.
C)42 percent.
D)cannot be determined.

Question 33

The marginal tax rate will eventually exceed the average tax rate for a:

A)proportional tax.
B)regressive tax.
C)progressive tax.
D)flat-rate tax.

Question 34

What is an example of a normative criterion that a government must trade-off in its method of taxation?

A)Equity
B)Efficiency
C)Administrative ease
D)All of these are correct.

Question 35

A government prints money to finance its expenditures.As a result,

A)the economy can operate at a point outside its production possibility curve.
B)inflation will occur.
C)consumers will give up private goods to finance the increased government expenditures.
D)both (b) and (c) are correct.

Question 36

A tax on the value of real estate holdings is a:

A)selective tax on wealth.
B)general tax on wealth.
C)general tax on income.
D)selective tax on income.

Question 37

The tax base of a payroll tax is:

A)consumer expenditures.
B)interest income.
C)labor income.
D)both (b) and (c) are correct.

Question 38

Marginal tax rates were reduced in 2001.Other things being equal, this is likely to:

A)increase tax evasion.
B)decrease tax evasion.
C)have no effect on tax evasion.
D)increase tax avoidance.

Question 39

Explain why it is difficult to evaluate alternative means of government finance according to a single criterion.What important economic and social variables are likely to be affected by the means of financing government goods and services? Are flat-rate taxes inherently more desirable than taxes with progressive rate structures?

Question 40

Taxes:

A)are voluntary payments to governments.
B)are unlikely to affect market supply and demand.
C)never affect efficiency in the allocation of resources.
D)are compulsory payments associated with certain activities.