Taxes in a CGE Model

Self-Assessment

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How to Take the Self-Assessment

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True or False Questions

click on your answer

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TRUE or FALSE?TRUE or FALSE?

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

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TRUE or FALSE?TRUE or FALSE?

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

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TRUE or FALSE?TRUE or FALSE?

An ad valorem tariff rate is calculated as:

import tariff revenue/fob value of imports * 100

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TRUE or FALSE?TRUE or FALSE?

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

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TRUE or FALSE?TRUE or FALSE?

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.

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TRUE or FALSE?TRUE or FALSE?

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

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TRUE or FALSE?TRUE or FALSE?

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

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TRUE or FALSE?TRUE or FALSE?

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.

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TRUE or FALSE?TRUE or FALSE?

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

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Multiple Choice Questions

click on your answer

A.

B.

C.

D.

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?

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-4.6 percent.

-8.1 percent.

-12.8 percent.

-13.4 percent.

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A.

B.

C.

D.

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.

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A.

B.

C.

D.

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.

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A.

B.

C.

D.

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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TAXES IN A CGE MODEL

04/19/2023

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