Consider figure 6-3, suppose that the government raises it sales tax rate from 4% to 6 %. Does the direction of the effect on the government’s tax revenues indicated by the figure’s dynamic tax analysis accord with the prediction that would have been forthcoming from static tax analysis? Explain briefly.
6-3 Consider the table below when answering the questions that follow. Show your works and explain briefly.
Christino | Jarius | Meg | |||
Income | Taxes Paid | Income | Taxes Paid | Income | Taxes Paid |
1000 | 200 | 1000 | 200 | 1000 | 200 |
2000 | 300 | 2000 | 400 | 2000 | 500 |
3000 | 400 | 3000 | 600 | 3000 | 800 |
- What is Christino’s marginal tax rate?
- What is Jarius’s marginal tax rate?
- What is Meg’s marginal tax rate?
Concept introduction:
Static tax analysis: Static tax analysis means an analysis which indicates that when the tax rate is raised by 1 percentage, such an increase will raise the tax revenues by 1 percentage.
Dynamic tax analysis: Dynamic tax analysis means an analysis which indicates that there is only a single tax rate which will maximize the government tax revenues.
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