YORK UNIVERSITY

time=2 hours

The exam contains two sections, A and B. Section A is worth 40 % of the marks, section B 60 %. Note that there is some choice in each section.

A : 40 %( 5 % per question )

Explain briefly the significance for the economics of taxation of any 8 of the following 10 terms.

1. lump-sum taxes

2. partial factor taxes

3. substitution effect

4. optimal income taxation

5. tax evasion

6. non-refundable tax credit

7. accrued capital gain

8. claw-backs

9. mortgage interest deductability

10. straight line depreciation

B : 60 % ( 15 % per question )

Answer any 4 of the following 8 questions.

1. What are the important assumptions made in the Harberger model of general equilibrium tax incidence?

2. Would subsidizing consumption of a good impose an excess burden? Explain briefly.

3. If quantity demanded of shirts were

Qs = 10(Ps)-3

and quantity demanded of onions were

Qo = 12(Po)-1

( where Q_s and Q_o are the quantities demanded of shirts and of onions, and P_s and P_o are the tax-inclusive prices of shirts and of onions ), what is the relation between the optimal commodity tax rate on shirts and the optimal commodity tax rate on onions?

4. Discuss briefly a government's choice of punishment for tax evasion, and its choice of expenditure on tax auditing, if what the government cared about were minimizing the amount of tax evasion at the least possible cost.

5. What are the most important respects in which the definition of taxable income for the Canadian personal income tax differs from the Haig-Simons ( or ``comprehensive'' ) definition of income?

6. What are the marginal tax rates for a personal income tax schedule with the following rules?

- the basic tax payable is 25 percent of all income

- each household gets a non-refundable tax credit of $5000

- however, if the household's income is $25,000 or more, this non-refundable tax credit begins to get reduced, by $1 for every $5 the person earns in excess of $25,000, until the credit is reduced to zero

- if the person's ``basic tax payable'' exceeds $10,000, then there is a surtax she must pay, equal to 20 percent of the difference between her basic tax payable and $10,000

7. Is the treatment of owner-occupied housing in the Canadian personal income tax efficient? Explain briefly.

8. How should an incorporated firm finance its new investment, to minimize its expected costs of finance?

the end