Answer to Question #242509 in Macroeconomics for yuri

Question

Indicate whether the following statements are true or false and provide a reason for each answer:

1. When the Minister of Finance annually increases sin taxes, it is an example of a unit tax.
2. Taxes on companies’ accounting profit will not lead to an excess burden on them.
3. A broad- based VAT is a regressive tax that will affect the higher incomes earners more, as they buy more goods and services
4. Public debt management has only the minimisation of debt servicing cost as a goal.

Answer 1

Among all the given statements, only one statement is true that is: 1. When the Minister of Finance annually increases sin taxes, it is an example of a unit tax. It is because sin taxes are imposed on the goods for which government wants to to decrease the quantity exchanged in the market due to which such taxes are imposed as per units.

Other statements are false because: 

2. Tax on accounting profit will put more burden than tax on economic Profit because there is no adjustment of implicit cost in the according profit.

3. Regressive taxes reduces the tax burden as income increases.

4. Public debt management has some more goals other than minimizing debt cost such as reducing risk and so on.