PADM 5006 Assignment 7 (last)

Please respond to each of the following questions and be sure to explain your response briefly.

1. A) Why would high tax rates tend to encourage charitable giving?

B) Which would be a greater incentive to make charitable contributions allowing tax deductions or tax credits for charitable contributions?

C) If the elasticity of demand for charity is high how will a reduction in the marginal tax rates affect charities?

2. A) What is the Laffer curve?

B) Could there be different Laffer curves for different income groups, types of income, and different historical circumstances?

3. From a Public finance perspective what difference does it make if you believe in the Accelerator model, Neoclassical model, or Cash Flow Model of investment?

4. Suppose the city is considering an increase in retail sales taxes. Some citizens advocate exempting medicine and food from the sales tax.

A) What is the tax base and how would the tax base be affected by these exemptions?

B) What would be the likely effects in terms of efficiency of this tax?

C) Will this tax be regressive?

5. What criteria should be used in choosing whether an area of government activity should be under federal, state or local government control?

6. What difference does it make if the federal government provides an unconditional grant, a matching grant, or a closed-ended matching grant to aid a local area? (Please use sketches illustrating the concept of a local government budget constraint in explaining your answer.)