Question

What is a lump sum tax? What are the desirable and undesirable aspects of using a lump-sum tax to finance government expenditures?

Answer 1

A lump sum tax is the amount of tax which is fixed for all. It is independent of incomes and facility uses. The advantage of using the lump sum tax is that it is non-discriminatory and doesn't depend on incomes or other things. It is not progressive in nature and doesn't kill the incentives. The disadvantage of using such tax is that it is same for poor and rich and thus discrminatory when it comes to the sacrifice of utility or the disutility. It is regressive in nature.