Taxes in a CGE Model

1. Taxes in a CGE Model Self-Assessment

2. How to Take the Self-Assessment • View the presentation as a slide show. • Move your cursor over the bottom left corner of the page to display navigation buttons. • Follow the instructions to select or write your answers. • Click on the right-arrow in the lower left corner to view the correct answer. • After completing a question and viewing the answer, click on the right-arrow to move to the next question. • Click on the left-arrow in the lower left corner to return to the previous question.

3. True or False Questionsclick on your answer

4. The direct burden of a tax is measured by the amount of tax revenue that it generates.

5. Tax incidence describes how the tax burden is shared between buyers and sellers – after prices have adjusted.

6. An ad valorem tariff rate is calculated as: import tariff revenue/fob value of imports * 100

7. An import tax can affect a nation’s welfare due to both efficiency effects and terms-of-trade changes.

8. When one country imposes an import tariff, the change in global welfare is the sum of importer and export efficiency losses, plus the terms of trade effects.

9. Terms of trade effects result from export and import (trade) taxes, but not from domestic sales and production taxes.

10. The welfare effect of a tax excludes its direct burden on producers and consumers.

11. In the SAM, producers’ expenditure on production taxes are included in value added and add to the cost of production and the value of gross output.

12. A tax on capital used in agriculture can lower welfare by reducing the productivity of capital in non-agricultural sectors.

13. Multiple Choice Questionsclick on your answer

14. After imposing a new production tax on its manufacturing sector, a country gains an increase in tax revenue of $365 million, but a loss in welfare of $49 million. What is the marginal welfare burden of this additional tax revenue? -4.6 percent. -8.1 percent. -12.8 percent. -13.4 percent.

15. After a country imposes a new “sin” tax on cigarette production, it finds that its EV welfare has actually risen. What is a possible cause? Welfare will unambiguously rise if a new tax is imposed. As output of cigarettes falls, output in non-subsidized corn rise. As output of domestic cigarettes falls, output of subsidized tobacco falls. As output of cigarettes falls, dutiable cigarette imports rises.

16. Assume that revenue from a new tax has a marginal welfare burden of 12.2 percent. This means that: An additional dollar of the next tax revenue costs 12.2 cents in efficiency losses. Neither A nor B. Both A and B. The marginal benefit of a new tax-funded investment must be at least 12.2 percent greater that the amount of the investment.

17. Income taxes are non-distorting in CGE models. True, because no CGE models account for labor-leisure trade-offs. True, because no CGE models account for structural shifts in aggregate demand. None of the above. False, it depends on how income taxes are modeled in the CGE model.

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