Are lump-sum taxes regressive or progressive? Is the deadweight loss of taxation the same for different types of taxes?
What will be an ideal response?
Lump-sum taxes force the rich and the poor people to pay the same amount – and thus impose a higher tax rate on the poor. Therefore, they are an example of regressive taxes. Not all taxes lead to a deadweight loss. With lump-sum taxes, all citizens in an economy would pay the government the same amount regardless of their earnings or market demand. Since they will pay the same amount in a lump-sum tax no matter what they do, the lump-sum tax does not distort their decisions. Since such taxes do not distort decisions, they do not lead to a deadweight loss. There are very few examples of real world lump-sum taxes and so virtually all taxes that people actually pay do lead to deadweight losses.
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The Ricardo-Barro effect says that
A) government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government. B) government budget deficits crowd out private investment and thereby lower the real interest rate. C) government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment. D) government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates.
Greg and Todd form a partnership and start a business in which each has a 50 percent share of the profit. After a year, the firm goes bankrupt and has debts of $20,000. Greg has no money, but Todd has $25,000 in the bank
Todd must pay ________ of debt. A) $0 because in a partnership each partner must pay the same B) $0 because partners in a partnership have limited liability C) half, or $10,000 D) $20,000