ECO 450 Week 7 DQ 1 Taxation and Income 641570611 (1)
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"Taxation and Income" Please respond to the following: Explain when and why the lump-sum tax is used as a benchmark. Evaluate the effectiveness of using the lump-sum tax as a benchmark and suggest strategy to improve the effectiveness. Lump sum tax is a tax for which the individual's liability does not depend upon behaviour. For example, a 15 percent income tax is not a lump sum tax because it depends on how much the individual earns. But a head tax of 1000 independent of earnings is a lump sum tax. Lump sum taxes have no excess burden. Lump-sum taxes are used as a benchmark because lump-sum tax changes behavior patterns on individuals, typically forcing people to consume, save and invest less. As a result of these changes in behavior prices are unaffected. Lump-sum tax is a fixed...