Assess each of the following taxes in terms of the benefits principle versus the ability-to-pay principle. What,

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Assess each of the following taxes in terms of the benefits principle versus the ability-to-pay principle. What, if any, actions are distorted by the tax? Assume for simplicity in each case that the purchaser of the good bears 100% of the burden of the tax.

a. A federal tax of $500 for each new car purchased that finances highway safety programs

b. A local tax of 20% on hotel rooms that finances local government expenditures

c. A local tax of 1% on the assessed value of homes that finances local schools

d. A 1% sales tax on food that pays for government food safety regulation and inspection programs

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Macroeconomics

ISBN: 9781319098759

5th Edition

Authors: Paul Krugman, Robin Wells

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