Question

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

h. What influence the magnitude of the total excess burden of a tax? If we were to have zero excess burden, how elastic should the supply or demand of a good should be?

Answer 1

1. Lumpsum taxation is a type of taxation in which every person has to pay a specific amount of tax regardless of their income.undesirable extract of lump sum tax is that lower income people have to suffer and desirable aspect of lump sum tax is thatit does not reduce people incentive to work because tax does not increase with their income.

H. Excess burden of tax means that when the society is unnecessarily suffering due result of tax or subsidy.

Taxation and subsidies influence the magnitude of total excess burden of tax.

if the demand is perfectly elastic the government will bear the burden and if the supply is perfectly elastic, the consumer will bear the burden.