Question 1
________ is caused by the fact that taxes distort economic decisions.
◦ Neutrality
◦ Excess burden
◦ Tax shifting
◦ Market failure
Question 2
The principle of neutrality states that, all else equal
◦ taxes that are neutral with respect to economic decisions are generally preferable to taxes that distort economic decisions.
◦ taxes that distort economic decisions are generally preferable to taxes that are neutral with respect to economic decisions.
◦ taxes that are neutral with respect to economic decisions are equally preferable to taxes that distort economic decisions.
◦ in the long run, all taxes are essentially neutral with respect to economic decisions.