Suppose the Government of Mascolia Is Considering Replacing Its Income

question 35

Essay

Suppose the government of Mascolia is considering replacing its income tax system with a consumption tax.Assume that the government's revenue requirement would be the same under either system.
(a)How would the base of a consumption tax compare with the base of an income tax? Does this have implications for the magnitude of the tax rate on consumption versus the magnitude of the tax rate on income? Explain.
(b)Compare the income tax and consumption tax in terms of vertical equity,assuming that both tax all people at the same rate (for example,a 20% tax on income and a 20% sales tax).

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Definitions:

High Frequency

Referring to wave frequencies that are very high, particularly in the context of electromagnetic spectrum, encompassing radio waves, microwaves, and part of the infrared light range.

Basilar Membrane

A structure in the cochlea of the inner ear that plays a key role in sound analysis and hearing.

Tone-Deaf

A term often used to describe a person's poor ability to distinguish musical notes or remain in tune while singing.

Detecting Changes

The process of identifying differences or modifications in conditions, situations, or variables over time.