What do economists mean when they say government purchases are exhaustive expenditures

Use a circular flow diagram to show how the allocation of resources and the distribution of income are affected by each of the following government actions. LO20.1 a. The construction of a new high school. b. A 2-percentage-point reduction of the corporate income tax. c. An expansion of preschool programs for disadvantaged children. d. The levying of an excise tax on polluters

What do economists mean when they say government purchases are exhaustive expenditures whereas government transfer payments are nonexhaustive expenditures? Cite an example of a government purchase and a government transfer payment. LO20.1

What are the main categories of government spending? What are the main categories of government revenue? LO20.2

What is the most important source of revenue and the major type of expenditure at the federal level? LO20.3

For state and local governments, what are the three most important sources of revenue and types of expenditure? LO20.4

How do the top two categories of federal employment differ from the top two categories of local and state employment? LO20.5

Distinguish between the benefits-received and the ability-topay principles of taxation. Which philosophy is more evident in our present tax structure? Justify your answer. To which principle of taxation do you subscribe? Why? LO20.6

What is meant by a progressive tax? A regressive tax? A proportional tax? Comment on the progressivity or regressivity of each of the following taxes, indicating in each case where you think the tax incidence lies: (a) the federal personal income tax, (b) a 4 percent state general sales tax, (c) a federal excise tax on automobile tires, (d) a municipal property tax on real estate, (e) the federal corporate income tax, (f) the portion of the payroll tax levied on employers. LO20.6

What is the tax incidence of an excise tax when demand is highly inelastic? Highly elastic? What effect does the elasticity of supply have on the incidence of an excise tax? What is the efficiency loss of a tax, and how does it relate to elasticity of demand and supply? LO20.7

Given the inelasticity of cigarette demand, discuss an excise tax on cigarettes in terms of efficiency loss and tax incidence. LO20.7

advanced analysis Suppose the equation for the demand curve for some product X is P = 8 0.6Q and the supply curve is P = 2 + 0.4Q. What are the equilibrium price and quantity? Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 + 0.4Q. How much tax revenue will this excise tax yield the government? Graph the curves, and label the area of the graph that represents the tax collection TC and the area that represents the efficiency loss of the tax EL. Briefly explain why area EL is the efficiency loss of the tax but TC is not. LO20.7

Is it possible for a country with a regressive tax system to have a tax-spending system that transfers resources from the rich to the poor? LO20.8

last word Does a progressive tax system by itself guarantee that resources will be redistributed from the rich to the poor? Explain. Is the tax system in the United States progressive, regressive, or proportional? Does the tax-spending system in the United States redistribute resources from higher-income earners to lower-income earners?