Consider three possible taxes that would raise the same revenue: A) a property tax on the...

Consider three possible taxes that would raise the same revenue: A) a property tax on the value of real estate, B) a per-unit tax on soft-drinks, and C) a sales tax on staple foods.

a. Rank the three taxes based on their economic efficiency in raising revenue. Explain. (You may refer to them by letter)

b. Explain why a policymaker might choose a different rank ordering of the three taxes when choosing which to implement.

Expert Solution

Consider three possible taxes that would raise the same revenue: A) a property tax on the value of real estate, B) a per-unit tax on soft-drinks, and C) a sales tax on staple foods.

a. Rank the three taxes based on their economic efficiency in raising revenue. Explain. (You may refer to them by letter)

b. Explain why a policymaker might choose a different rank ordering of the three taxes when choosing which to implement.

Answer

a.

The ranking of the tax based on their economic efficiency is

1. A sale tax on staple food

2. Per unit tax on soft drink

3. Property tax on the real estate

Basically all three tax on different product yields the same revenue but when we considered the conomic effficiency we see that the tax imposed on the staple food yiled more economy in term of its efficiency with respect to other two product A and B as mentioned . Also per unit tax on soft drink is also have potent economic efficiency in raising the revenue than the real estate taxes .Therefore they are arranged in thiese ranking in terms of raising revenue by their economic efficiency

b.

A Policy maker can choose other ordering or ranking system based on the previous year financial records and the conomic condition of these three product and based on that it can wisely be ranked . The forecasting on the tax on these product can also be used by the policy maker to predict which will be ranked according to the economic efficiency for raising revenue .But policy maker also consider while selecting the rank the supply and demand of the product on that it become more clearer for them to see if all of them are raising the same revenue then which should be ranked first and last.Therefore based on these the policy maker can choose different ranking system

HAVE A GOOD DAY !

Rahul Sunny answered 2 years ago

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