Suppose that the tax system had the following features. Explain how individuals’ behaviour is affected.

a. Contributions to charity are tax deductible.

b. Sales of beer are taxed.

c. Realized capital gains are taxed, but accrued gains are not. (When someone owns a share of stock that rises in value, they have an ‘accrued’ capital gain. If they sell the share, they have a ‘realized’ gain.)