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Chapter 22 Tutorial The Public Sector

©2000 South-Western College Publishing

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1. From 1950 to the late-1990s, total government expenditures as a percentage of GDP in the United States a. fell by half.b. remained fairly constant.c. grew from one-fourth to one-half.d. grew from one-quarter to one-third.

D.

335 40 45 50 55 60 65 70 75 80 85 90 95

Year5%10%15%20%25%30%35%40%45%50%

Total government expenditures

Federal government expenditures

State & Local Gov. Expenditures

00

Government Expenditures 1935 - 1998

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2. Which of the following accounted for the second largest percentage of total federal government expenditures as of 1999?a. Income security.b. National defense.c. Interest on the national debt.d. Education and health.

B

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1998 Federal Outlays

11.0%

15.0%

49.0%

16.0%

2.5%1.0%1.0%

2.5%

2.0%Other

International affairs

Veteran's benefits

Agriculture

Transportation

Education and health

Interest on federal debt

National defense

Income security

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3. Which of the following contributed the second largest percentage of total state and local government revenues in 1999 (excluding “Other Categories”)? a. Corporate income taxes.b. Sales and excise taxes.c. Individual income taxes.d. Property taxes.

B

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State & Local Receipts 1998

39%

3%

15%

19%

24%

Other

Corporate income taxes

Individual income taxes

Property taxes

State sales tax

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4. Which of the following countries devotes about the same percentage of its GDP to taxes as the United States? a. Sweden.b. Italy.c. United Kingdom.d. Japan.

D.

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0%

10%

20%

30%

40%

50%

60%

70%

Tax Burden 1998

SwedenFranceItalyGermanyCanadaU.K.U.S.Japan

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5. “The poor should not pay income taxes.” This statement reflects which of the following principles of taxation? a. Fairness of contribution.b. Benefits received.c. Inexpensive to collect.d. Ability to pay.

D. Since the poor lack the ability to pay, the tax system should be designed so they pay less taxes than people with higher incomes.

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6. Some cities finance their airports with a departure tax: Every person leaving the city by plane is charged a small fixed dollar amount that is used to help pay for building and running the airport. The departure tax follows the a. benefits-received principle.b. ability-to-pay principle.c. flat-rate principle.d. public-choice principle.

A. Those persons who are gaining the most from the airport are the ones who are paying the most for it.

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7. Which of the following statements is true? a. The most important source of tax revenue

to the federal government is individual income taxes.

b. The most important sources of tax revenue to state and local governments are sales and property taxes.

c. The most important source of tax revenue to local governments is local property taxes.

d. The taxation burden, measured by taxes as a percentage of GDP, is lighter in the U.S. than in most other advanced industrial countries.

e. All of the above are true. E

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8. Which of the following statements is true?a. A sales tax on food is a regressive tax.b. The largest source of federal government

tax revenue is individual income taxes.c. The largest source of state and local

government tax revenue is sales taxes. d. All the above are true statements.

D. All the above are true statements.

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9. A tax that is structured so that people with higher incomes pay a larger percentage of their income for the tax than do people with smaller incomes is called a (an)

a. income tax.b. regressive tax.c. property tax.d. progressive tax.

D. Answer a is not specific; b is the opposite principle, and c is based on property not income.

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10. Generally, most economists feel that a ______type of income tax is a fairer way to raise government revenue than a sales tax. a. Regressive.b. Proportional.c. Flat-rate.d. Progressive.

D. A progressive tax is argued to be fair because people with higher incomes pay more tax.

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11. The federal personal income tax is an example of a (an) a. excise tax.b. proportional tax.c. progressive tax.d. regressive tax.

C. Since the marginal tax rate increases with income, the federal personal income tax is a progressive tax.

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12. A 5 percent sales tax on food is an example of a a. flat tax.b. progressive tax.c. proportional tax.d. regressive tax.

D. A sales tax on food is a regressive tax because people with higher incomes do not spend proportionately more on food.

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13. Margaret pays a local income tax of 2 percent, regardless of the size of her income. This tax isa. proportional.b. regressive.c. progressive.d. a mix of (a) and (b).

A. Less tax is paid by a regressive tax and more tax is paid by a progressive tax as people’s incomes rise.

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14. Which of the following statements relating to public choice is true? a. A low voter turnout may result when voters

perceive that the marginal cost of voting exceeds its marginal benefit.

b. If the marginal cost of voting exceeds its marginal benefit, the vote is unimportant.

c. Special-interest groups always cause the will of a majority to be imposed on a minority.

d. All of the above.

A. This is the rational ignorance public choice theory.

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END