Assignment:
1. Illustrate the effects of an income tax which exempts savings from the tax base. In particular, show
a. the effect on consumer choices
b. the amount of compensating variation
c. the revenues from the tax
d. why there is no deadweight loss (i.e., the tax is non distorting)
e. why such a tax is equivalent to an expenditure tax.
2. On grounds of equity and efficiency, evaluate the case for income taxation versus value-added taxation (expenditure taxation) as sources of government finance. You will want to give particular attention to the definition of tax base and rate structure in your discussion.
3. "The deadweight loss of taxation increases with the square of the tax rate." Explain this proposition. What are its implications for the design of a value-added tax such as the GST in Canada? Is this a case in which efficiency considerations are diametrically opposed to equity considerations? Explain.
Answer ONE of the following questions.
4.On grounds of equity and efficiency, assess the recent Nova Scotia budget. (Budget materials can be found at
https://www.novascotia.ca/finance/en/home/default.aspx,)
5. The Nova Scotia government provides a rebate of the Provincial portion of the HST on home-heating fuel (oil, gas, electric) at point of sale. On grounds of equity and efficiency, evaluate this policy.
6. The Government of Canada (the Harper Conservatives) have categorically rejected the idea of carbon pricing (e.g., a carbon tax such as that in British Columbia or a cap-and-trade system such as that recently introduced in Ontario). On grounds of equity and efficiency, evaluate the Government's position on this issue.