Question

Look at choices ii), iii) and iv) above and characterize them as following: ii) proportional, iii) progressive, iv) regressive Ignore whether or not they are correct in answering Q#6. Start with the very Canadian assumptions that redistribution, when done effectively and effficiently, is social welfare improving, and that the govt’s aim is to maximize social welfare at the lowest cost to taxpayers. Also assume, for the purposes of this question, that the the three options above are equally effective in achieving their primary aim of correcting for market failure. Chose the best answer: The private sector (businesses) prefer a _________ tax and _________ subsidy, whereas the govt. prefers a _________ tax and _________ subsidy. a) progressive, proportional, proportional, regressive b) proportional, regressive, progressive, proportional c) progressive, regressive, regressive, progressive d) regressive, progressive, progressive, regressive e) regressive, progressive. None of the above since taxes and subsidies are just transfers so there are no net welfare effects

Answer 1

The private sector prefers a "Regressive" tax and "progressive" subsidy and government prefers "progressive tax" and "regressive subsidy".

The correct answer to this question is "D"

A progressive tax means where the tax structure increases with the income i.e. higher the income higher the tax will be a company or private firm will not want that. A regressive tax means higher the income lower the tax.

On the other hand, the government believes higher the income the higher tax the person should pay and lower the income higher the subsidy they should get. With is important for maintaining an equal society.