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Principles of Taxation for Business and Investment Planning, 5/e
Sally M Jones, University of Virginia
Exploring the Tax Environment
Tax Policy Issues: Standards for a Good Tax

Quiz for Chapter 2



1

A government's tax policy of enactment of a tax on a new tax base is considered the least radical and least sensitive way to raise revenue.
A)True
B)False
2

Tax revenue forecasting that incorporates the correlation between the tax base and the tax rate is called?
A)Tax Revenue forecasting.
B)Complex forecasting.
C)Static Forecasting.
D)Dynamic Forecasting.
E)Correlational Forecasting.
3

Which of the following is true about the income effect of a tax rate increase.
A)Taxpayers in some tax brackets will have higher income.
B)Taxpayers will devote less time to income producing activities.
C)Taxpayers will devote more time to income producing activities.
D)Taxpayer behavior will be unchanged in response to the rate increase.
E)None of these statements concerning the income effect are true.
4

Self-employed individuals reaction to a tax rate increase is more likely to be the substitution effect rather than the income effect.
A)True
B)False
5

Negative externalities are by products of the free enterprise system; a prime example is environmental pollution.
A)True
B)False
6

Which of the following is true about tax preferences?
A)They contribute to an accurate measurement of the tax base.
B)They contribute to a correct calculation of the tax liability.
C)They support the primary function of the tax law, raising revenues.
D)They increase the amount of tax revenue collected by the Treasury.
E)They allow certain persons or organizations to pay less tax.
7

Which of the following is not a dimension of the ability to pay.
A)The inflow of resources during the year.
B)The consumption of resources represented by the purchase of goods and services.
C)The accumulation of resources in the form of certain types of wealth.
D)The accumulated wealth that a person gives to others during life and death.
E)All of the above represent the dimensions of ability to pay.
8

Adding tax preferences has no effect on the horizontal equity of the income tax.
A)True
B)False
9

The public's perception of the fairness of the tax system can have a significant effect on the ability to collect tax revenues.
A)True.
B)False.
10

Which of the following statements is true about a regressive tax?
A)A regressive tax is generally better for taxpayers in the lower income brackets.
B)Regressive tax rates impose the same percentage of tax on all levels of income but the the amount collected varies with income.
C)Regressive taxes generally impose a greater burden on lower income bracket taxpayers.
D)Regressive taxes generally collect more from higher income bracket taxpayers.
E)Regressive taxes collect the same dollar amount from all taxpayers regardless of income bracket.




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