Mid-Term Test 1 Public Finance

MID-TERM TEST 1
Subject: Public Finance
Student’s name: Phan Vũ Kim Giao - 11205052 Time allowed:
Question 1: True/False Questions: Decide whether the following statements are True or False.
Explain your reasoning
1. In public goods market, we horizontally sum the demands of each individuals to get the social
demand of the public good.
False;
The horizontal sum is used for private goods. The public goods summed vertically
2. The environmental protection tax is a kind of corrective taxation.
True;
Corrective taxes are taxes applied on negative externalities. Environmental tax is the tax levied on
the good and product that cause the impact on environment.
3. In the regressive tax, the marginal tax rate is equal or bigger than the average tax rate.
True;
The higher income, the higher tax rate when applied to the marginal tax rate. So it is not fixed as
applying the average tax rate.
4. Discretionary spending includes spending on Social Security program .
False
The spending on Social Security program must be included in mandatory spending
5. Government provision of a public good will perfectly crowd out private contributions.
True
The Government provision, the less private contributions of public good.

Question 2: Multiple choice Questions: Choose the correct answer
1. Which of them are the issues in cost – benefit analysis

a. Common counting errors.
b. Certainty of costs and benefits
c. Distributional impacts of public projects.
d. Both a and c are true.
e. Both b and c are true.
2. Which of the following kinds of depreciation is the true deterioration in the value of capital in
each period of time?
a. Depreciation credits
b. Depreciation allowances
c. Economic depreciation
d. Depreciation schedule
e. Accounting credit
3. Which of the following would prevent the Tiebout result?

a. Rich people pay the same in taxes as poor people.
b. Individuals aren't perfectly mobile.
c. There are few towns nearby.
d. All of the above are correct.
e. Both b and c are correct.
4. Which one of them are the issues with Coasians solutions?
a. Assigning blame for externalities to one specific entity.
b. The property rights in question are held by more than one party
c. There are few individuals on one side of the negotiation.
d. Both a and b
e. Both a and c
5. In a competitive market in which demand is completely inelastic, who bears a tax levied on
the consumers ?
a. Only the workers
b. Only the firms
c. Both the workers and the firms, although the workers bear more of the tax
d. Both the workers and the firms, although the firms bear more of the tax
e. More information needed to answer the question
Question 3: What is the definition of indirect tax and direct tax? What are the advantages and
disadvantages of these taxes?
The direct tax is the tax that is levied directly on individuals or assets of individuals, based on the
ability of that person can make.
The indirect tax is the tax indirectly applied on individuals but is paid by another person or
organization.
● indirect tax:
- Advantages:
+ Certainty: People know how much they need to spend and the government knows how much
they can collect
+ Equitable: It tax on earning so more earning, more tax rate
+ Saving: reduce time and cost to manage and calculate the tax
- Disadvantages:
+ If the tax rate is too high, it will reduce people's savings, reduce investment incentives
+ People can avoid these tax by false information
+ Too public so can inconvenience people to pay their tax.
● Indirect tax:
- Advantages:
+ Everyone can contribute tax through payment.

+ Reduce the consumption of product that can make negative externalities
+ It's quite discreet so people will feel more comfortable to pay taxes (cause they do not know
they are paying tax through payment or others)
- Disadvantages:
+ Rising the cost of product for corporate or organization

+ If there are so many indirect taxes, the cost will be higher, that mean harder for the poor can
access the products
Question 4:
Person A in country X has a monthly taxable income of $37,000. MTR is 20% if the income is
between $15,000 and $25,000. MTR is 30% if the income is over $25,000. The current ATR of A is
18%. X provides a $1,000 exemption per family member. There are 3 members in the family of A
a) Calculate the amount of tax payment?
b) Calculate the tax paid if the taxable income increases to $60,000.
a.
Taxable when minus the exemption = 37000 - 1000 x 3 = 34000
● Using ATR:
Average tax payment = 34000 x 18% = $6120
⇒ So the tax payment when us ATR is $6120
● Using MTR
First $15000 no tax applied
From 15000 to 25000 the tax payment = 10000 x 20% = 2000
From 25000 to 34000 tax payment = 9000 x 30% = 2700
So using MTR, the tax payment is $4700
b.
Taxable when minus the exemption = 60000 - 1000 x 3 = 57000
● Using ATR:
Average tax payment = 57000 x 18% = $10260
⇒ So the tax payment when us ATR is $10260
● Using MTR
First $15000 no tax applied
From 15000 to 25000 the tax payment = 10000 x 20% = 2000
From 25000 to 57000 tax payment = (57000-25000) x 30% = 9600
So using MTR, the tax payment is $11600

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MID-TERM TEST 1

Subject: Public Finance

Student’s name: Phan Vũ Kim Giao - 11205052 Time allowed:

2. The environmental protection tax is a kind of corrective taxation.

4. Discretionary spending includes spending on Social Security program .

The spending on Social Security program must be included in mandatory spending

The Government provision, the less private contributions of public good.

1. Which of them are the issues in cost – benefit analysis

3. Which of the following would prevent the Tiebout result?

+ Everyone can contribute tax through payment.

+ Rising the cost of product for corporate or organization

a) Calculate the amount of tax payment?

b) Calculate the tax paid if the taxable income increases to $60,000.

Taxable when minus the exemption = 37000 - 1000 x 3 = 34000

⇒ So the tax payment when us ATR is $6120

First $15000 no tax applied

From 15000 to 25000 the tax payment = 10000 x 20% = 2000

From 25000 to 34000 tax payment = 9000 x 30% = 2700

So using MTR, the tax payment is $4700

Taxable when minus the exemption = 60000 - 1000 x 3 = 57000

Average tax payment = 57000 x 18% = $10260

⇒ So the tax payment when us ATR is $10260

First $15000 no tax applied

From 15000 to 25000 the tax payment = 10000 x 20% = 2000

From 25000 to 57000 tax payment = (57000-25000) x 30% = 9600

So using MTR, the tax payment is $11600

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