mid-10a - University of Toronto Economics 336 Public...

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University of Toronto Economics 336 – Public Economics Midterm examination November 16, 2010 1. Under this system, two earner couples pay less tax than one earner couple of equal family income. (For full marks, the answer should explain why, or give a numerical example.) If well-being is best measured by family not individual income then this violates horizontal equity. However, individual taxation may be preferred if: (i) higher labour supply elasticity of married women implies it is optimal to tax their labour income at a lower rate than their husbands; (ii) one earner couples consumer more leisure or household production time than two earner couples, which is not captured by the market taxable income measure. 2. The question asks for a comparison between an excise tax on housing and a uniform commod- ity tax. According to the Corlett–Hague principle, the excise tax on housing is more desirable if housing services are complementary with leisure. That is, if people with big houses would prefer to stay at home rather than work, which seems plausible, then a tax on housing is de- sirable. (But an answer that argues the opposite based on the opposite assumption is perfectly
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mid-10a - University of Toronto Economics 336 Public...

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