Taxing Questions!
Questions 11.7 - Taxation
1.) Distinguish between direct and indirect taxes, and provide
examples of each.
2.) Define and explain, using examples, the difference between
proportional, progressive and regressive taxation.
3.) Explain how income taxes can be used to lower income
inequalities.
4.) a.) Explain why indirect taxes are regressive
b.) What is the reason for excluding some goods and services
considered to be necessities from payment of indirect
taxes (such as VAT and Sales Tax)?
c.) What impact does this have on how regressive the
indirect taxes are
5.) Why do you think the issue of using taxes to
redistribute income is partly a normative issue?
6.) What is likely to happen to a country’s Lorenz
curve and Gini coefficient if its government:
a.) increases tax rates applied to higher incomes
b.) places a greater emphasis on idirect taxes
relative to direct taxes as sources of tax revenue
c.) reduces transfer payments
d.) introduces a system of free education and health
care
Test your understanding 11.9
1. Make a distinction between income taxes and indirect
taxes, explain how each of these can affect the
allocation of resources.
2. Why do we find some countries around the world
using general expenditure/sales taxes, even though
these are regressive and do not help achieve greater
equality in income distribution.
3. Explain some arguments according to which greater
income equality may make the allocation of resources
(a) more efficient, and (b) less efficient
4. Explain the possible negative/positive effects of (a)
transfer payments, (b) provision of merit goods, and (
c) government intervention in the markets on the
allocation of resources