Author Question: Are lump-sum taxes regressive or progressive? Is the deadweight loss of taxation the same for ... (Read 116 times)

JMatthes · **on:** Jun 29, 2018

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?

Question 2

Refer to Figure 5-2. The marginal benefit of the last unit produced is represented by the price

A) Pa. B) Pb. C) Pc. D) Pf.

cclemon1 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

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.

Answer to Question 2

B