Reading/Study Guide – Chapter 17, Chapter 35, & Chapter 20   

Answer the following:

Chapter 17, start on page 363

1. We have a progressive federal income tax. What is meant by a progressive tax?

2. What is the definition of a proportional tax, aka a flat tax?

3. What is the definition of a regressive tax? List an example.

4. Explain the relationship between elasticity and tax incidence?

Chapter 35, pages 720-723

1. Draw and correctly label the Laffer Curve in Figure 35.12.

2. What was Arthur Laffer’s main idea behind the curve that he reportedly drew on a napkin when attempting to explain his tax position to journalists?

3. How does the Laffer Curve relate to taxation and supply-side economics?

4. Why is determining the economy’s position on the Laffer Curve so important for assessing tax policy?

5. Why is there a tradeoff between efficiency and equity with taxation?

Chapter 20, pages 410 - 412.

1.  Draw and label the Lorenz Curve in Figure 20.1

2. What does a Lorenz Curve show?

3. What is the Gini coefficient that shows perfect equality, no inequality?

4. What is the Gini coefficient that shows perfect inequality, someone owns everything?

5. Draw and label the Lorenz Curve in figure 20.2

6. What do transfer payments and taxation do to the Gini coefficient?

7. Why is there a tradeoff between efficiency and equity with taxation?