Public Finance In Canada 5th Canadian Edition Harvey S. Rosen, Ted Gayer, Jean-Francois Wen, Tracy Snoddon - Solutions

Unlock a comprehensive understanding of "Public Finance In Canada 5th Canadian Edition" with our expertly crafted solutions. Access the complete answers key and solutions manual, available in easy-to-download PDF format. Dive into solved problems and step-by-step answers that guide you through each chapter's intricacies. Enhance your study with our test bank and instructor manual, tailored to ensure mastery of key concepts. Whether you're seeking textbook solutions or free download options, our resources provide the essential questions and answers you need. Elevate your learning experience with our online solutions for seamless academic success.

Jones, who has a personal income tax rate of 40 percent, holds an oil stock that appreciates in value by 10 percent each year. He bought the stock one year ago. Jones’s stockbroker now wants him to switch the oil stock for a gold stock that is equally risky. Jones has decided that if he holds on
Assume that two municipalities (in the same province) have different demand curves for firefighters and can hire firefighters at the same constant marginal cost.a. Draw diagrams illustrating the demand curves and how many firefighters would be hired by each of the two municipalities.b. As a result
Suppose that a lack of information leads individuals to underestimate the true benefits of “early detection” medical procedures, like screening for colon cancer. This leads to a discrepancy in the informed demand (which captures the true private marginal benefits from screening tests) and the
Parents with children under 18 can split their incomes for tax purposes: one spouse may shift up to $50,000 to the other in order to lower their combined income taxes. Suppose this policy is implemented in Hibernia, where the tax structure is 20 percent of income up to $30,000, and 40 percent of
Rich lives two periods. His earnings in the present are $100; in the future they are $75.6. The interest rate is 8 percent.a. Suppose Rich’s earnings are subject to a 25 percent tax. Suppose also that interest earnings are taxed at the same rate and interest paid is tax deductible. Using our
In January 2000, delegates at the founding convention of the Canadian Alliance (a predecessor to the current Conservative Party) voted to make a 17 percent “flat-rate” tax the cornerstone of the new party’s election platform. The shift would reduce the top marginal rate applied to high-income
According to Nobel Laureate Ed Prescott, “Increasing tax rates [in Europe] will not increase revenue” (Prescott, 2004: 2). What assumptions must hold in order for this statement to be correct?
Use the same table as in Exercise 5 above but assume now that the retail item (the sale by Z to the consumer) is exempt from GST. How much does each producer(a) Collect in GST, (b) Receive as a GST credit, and (c) Remit to the government?
Some Canadian political leaders have referred to “those corporate welfare bums” when average tax rates on corporate-source income have been low. What view of the corporation is implicit in this statement? Contrast this view with the view of conventional economics.
Finance Minister Michael Wilson’s 1987 tax reform contained several provisions that increased corporate taxes. The White Paper that accompanied the tax reform did not include an analysis of the distributional implications of corporate income tax changes, although it did include analysis regarding
Canada, through its dividend tax credit, has achieved partial integration of its corporate income tax with its personal income tax. Would a move to more complete integration, or some other means of eliminating “double” taxation of corporate sector income, make sense from the standpoint of the
“Small corporations should face lower tax rates than large businesses, just as individuals with low incomes should face lower income tax rates than those with high incomes.” What view of the corporation is implicit in this statement? Contrast this view with the view of conventional economics.
Ahmed’s personal marginal income tax rate is 15 percent at the federal level and 5 percent at the provincial level. Bindi’s federal and provincial personal marginal income tax rates are 29 percent and 13 percent, respectively. Both individuals receive dividends that are eligible for the
The Quebec government provides a tax holiday—a temporary reduction in the corporate tax rate for several years—for small- and medium-sized manufacturing companies investing in remote regions. Discuss how this policy might distort the allocation of resources between longlived and short-lived
Assume Canada is a small, open economy such that the supply of capital is perfectly elastic at a net rate of return equal to 10 percent. Suppose the demand for capital in Canada is a downward sloping function of the net-of-tax rate of return rt . Depict the equilibrium quantity of capital in Canada
Jimbo Corporation distributes its after-tax earnings to shareholders as dividends. Jimbo’s before-tax earnings per share are $200 and the corporate tax rate is 50 percent. Roodly and Drey each own one share in Jimbo and they face marginal personal income tax rates of 20 percent and 40 percent,
Suppose that corporation XYZ has a domestic income of $1,000,000 and paid foreign taxes of $200,000. If the domestic corporate tax rate is 25 percent, how much will XYZ pay in domestic taxes if multinational firms are allowed to deduct foreign tax payments from their domestic taxable income? How
What role has the Canada Health Act played in shaping the evolution of the Canadian health system?
Can you think of reasons why the problem of adverse selection in the market for health care insurance might become more severe among the older cohorts in the population?
In Germany and the Netherlands, public health care insurance is voluntary for people with relatively high annual incomes (while public coverage is mandatory for those with middle and lower incomes). However, the private insurers must accept all those who apply for coverage. Explain how this
Consider an individual whose earnings are taxed at a rate of 25 percent under the personal income tax and at a combined rate of 10 percent under the Canada Pension Plan and Employment Insurance payroll taxes. Suppose that if the individual becomes unemployed, EI replaces 50 percent of his or her
Yasser and Hikaru are video game fans and they agree to jointly sponsor the prize fund for a tournament. They wish to attract marquee players to the event and they recognize that the larger is the prize fund, the more marquee players they will attract. Suppose Yasser’s demand for marquee players
Return to Exercise 5 in Chapter 4, where Moe, Larry, and Curly are hiring the services of an acting coach. Suppose the coach’s fee is $15 per hour.a. If the trio share the hourly cost equally, and they use majority voting to determine the number of hours of coaching to hire, how many hours will
In each of the following circumstances, decide whether the impact of government on the economy increases or decreases and why. In each case, how does your answer compare to that given by standard measures of the size of government? a. Provincial governments mandate that employers provide
Suppose the government imposes a quota restricting the production of apples to an amount less than the competitive market equilibrium quantity. Illustrate this situation on a production possibilities curve for fig leaves and apples and explain which condition for efficiency is violated.
Industries in the country of Technologia invest in new equipment that annually increases productivity of private workers by 3 percent. Government employees do not benefit from similar technical advances.a. If wages in the private sector are set equal to the value of the marginal product, how much
Why do you think firms lobby the government to enact policies that restrict production in their industry, rather than simply agreeing to restrict production on their own?
For each of the following, decide whether the activity should be under the control of the federal, provincial, or municipal government, and explain why.a. Auto air pollution control regulations.b. Regulations governing whether physicians infected with HIV should be allowed to perform invasive
The federal government drastically cut transfers to provinces and replaced some conditional grants for social assistance with unconditional ones. Discuss the effects of these changes on the following:a. The level of spending by provincial governments.b. The composition of spending by provincial
An econometric study found that the more ethnically diverse a country, the more decentralized its public sector is likely to be, other things being the same (Panizza, 1999). Is this finding consistent with our theory of federalism?
Consider the case where the federal government is willing to spend $X in the form of a grant to provinces. Using diagrams such as those in Figures 8.2 and 8.4, show that with normally shaped indifference curves the increase in welfare will be greater if a nonmatching grant, rather than a matching
When the federal government announced its changes to equalization in 2007, it provoked an immediate and negative response from the premier of Newfoundland. He argued that the federal government had broken its promise to exclude all nonrenewable-resource revenues. If the purpose of equalization is
This problem uses equalization data provided in an Excel spreadsheet available on the OnlineLearning Centre at www.mcgrawhill.ca/olc/rosen.a. Using the template and data provided in the spreadsheet, calculate the tax base deficiency and equalization entitlement for each tax base for Newfoundland,
Consider the following situation. A couple, who recently had twins, makes two claims for parental leave. The husband makes a claim for the birth of one twin. The wife makes her claim for the birth of the other twin. As the head of Employment Insurance in Canada, would you allow either or both of
Why is the demand for health care services different from the demand for other kinds of services?
a. Show that the unemployment rate, ur, is related to the employment rate, er, and labour force participation rate, pr, as follows:b. Suppose the labour market is in equilibrium when the labour force participation rate is 0.60 and the employment rate is 0.55. What is the unemployment rate in this
Judging from media reports, the Canadian health system is operating under tremendous financial pressure, and is in danger of collapse. As an economist advising the federal Minister of Health, what evidence would you collect to determine if the concerns reported in the media were justified?
Nathan’s income in a typical year is $75,000. There is a 10 percent chance that Nathan will be seriously ill next year, incurring $15,000 in medical expenses. Samantha also earns $75,000 in a typical year. Her chance of becoming seriously ill next year and incurring $15,000 in medical expenses is
What problems would arise in setting experience-rated employment insurance premiums with regard to the following?a. Distinguishing between quits and layoffs.b. Setting rates for new businesses.c. Setting rates for small businesses with only a couple of employees.d. Firms declaring bankruptcy.
Two individuals, Harry and Ron, are both working. Harry faces a 10 percent chance of becoming unemployed for three months and losing $12,000 in income. Ron’s probability of becoming unemployed is lower, at 8 percent, but he too would be unemployed for three months and would lose $12,000 in
Briefly discuss the effects of a higher benefit rate on the duration of unemployment. How are the incentive effects altered if the change in the benefit rate is expected to be temporary rather than permanent?
“Public pensions improve economic welfare. Because the system distributes current earnings of the young (which they would save anyway) to the old, the old are better off and the young are unaffected.” Discuss carefully.
Will an increase in the Canada Pension Plan contribution rate increase the national savings rate?
Why do we have two public pension systems, OAS/GIS/SA and CPP/QPP? Discuss the rationale for having two pension systems and the relationship between them.
Consider a model in which an individual lives only two periods. The individual has diminishing marginal utility of consumption and receives an income of $20,000 in period 1 and an income of $5,000 in period 2. The private interest rate is 10 percent per period, and the person can borrow or lend
Consider the social rates of return provided in Table 13.3. The social rates of return for graduate degrees appear to be very low (or negative). Based on these estimates, an analyst recommends that government support for graduate education be reduced. Discuss the merits of this recommendation. Is
Elizabeth’s wage rate is $5 per hour. She faces a welfare system that pays a monthly benefit of $150. The benefit is reduced by 25 cents for each dollar of earnings.a. Sketch the budget constraint in a leisure/income diagram. How many hours does she have to work before her benefit is reduced to
Suppose you wanted to conduct an econometric study of the impact of job training programs on future earnings. What data would you need? Suggest a specific estimating equation.
Hermione, without a job or job prospects, has been on social assistance for the past four months. Social assistance pays a basic benefit of $600 a month with a benefit reduction rate of 75 percent for earned income. Her welfare benefit is given as B = 600 - 0.75E, where E represents monthly
There is a growing concern with the incidence of poverty among unattached, non-elderly individuals. Feng, Dubey, and Brooks (2007) find that being a high school leaver is an important risk factor for being in low income for this group. Provincial welfare and workfare programs often require
Hanson (2006) provides evidence that the private rate of return to university education differs substantially depending on the area of study. Tuition fees that differ substantially from program to program would result in more equal private rates of return from area to area.Explain why. Would
In David Johnson’s Signposts of Success, elementary schools are identified as “good” schools when they outperform other schools with similar socioeconomic characteristics. For example, if two schools have the same predicted test results based on having the same socioeconomic characteristics
In the province of Alberta, the tax on hotel rooms is 5 percent. Supporters of this tax argue that the tax benefits the province because its victims are largely out-of-province tourists. Use the theory of tax incidence to analyze this claim.
Higher payroll taxes may be required to finance the Canada Pension Plan as the population ages. If employers are asked to pay all of any such increase, rather than sharing the increase equally between employers and employees, how would this affect wages and employment? Would businesses likely end
Assume that the capital–labour ratios are identical in all sectors of the economy. What determines the incidence of a tax on the output of any single sector?
Suppose that the income tax in a certain nation is computed as a flat rate of 5 percent, but no tax is levied above $50,000 in taxable income. Taxable income, in turn, is computed as the individual’s income minus $10,000; that is, everyone gets a $10,000 deduction. What are the marginal and
Internet purchases are thought to be highly sensitive to tax rates, and applying sales taxes to all such purchases substantially reduces the number of online buyers and the amount of online spending. What are the implications for the incidence of sales taxes that include Internet (as well as other)
In 2004, the city of Cologne, Germany, instituted a “pleasure tax.” Among other things, the tax applied to massage parlours, table-dancing clubs, and brothels. Many sex workers complained that the tax was unjust because it was levied on them rather than the men who patronize their services. One
The applied incidence study by Lee (2007), discussed in this chapter, assumes that personal income taxes are fully borne by the taxpayer with no shifting. However, there is some evidence provided by Schaafsma (1992) that Canadian dentists shift a portion of personal income taxes onto dental
Arnie has an income of Y and spends it only on food and music. Let PF and PM denote the price of food and music, respectively, and denote the quantities by QF and QM. In the absence of taxes, Arnie’s budget constraint is Y = PFQF + PMQM. Now suppose an ad valorem tax of 25 percent is imposed on
Petroleum products manufacturing is one of the most capital-intensive industries in Canada. Use a general equilibrium framework to discuss the possible incidence of a tax on petroleum products.
According to the study by Kleven, Landais, and Saez (2015), the international migration decisions of top-earning European soccer players is very sensitive to income tax rates—when the tax rates they face in their own country increase substantially, they move to another country. What are the
Which of the following is likely to impose a large excess burden?a. A tax on land.b. A subsidy for personal computers.c. A tax of $75 on iPods, MP3 payers, and smart-phones. (An “iPod Tax” was proposed in 2010 in a private member’s bill to Parliament in Canada.)d. A subsidy for investment in
The combined federal and provincial taxes on a carton of 200 cigarettes were reduced from $24 to $10 in Ontario in February 1994. (a) Describe how you would compute the reduction in excess burden that results from this lowering of the tax. (b) Or might such a tax reduction worsen
Suppose the market demand curve for beer is described by the equation QDb = 600 − 15Pb, where QDb is the number of cases of beer and Pb is the price. The supply curve is given by QDb = 10Pb.a. Calculate the elasticities of demand and supply at the equilibrium quantity.b. Suppose
Suppose a 10 percent tax is imposed on airplane tickets.a. Use Equation (15.3) to calculate the excess burden of this tax when the price elasticity of compensated demand is -1.1 and airplane ticket revenues are $91 billion annually.b. In the short run, the supply of flights is relatively inelastic,
Setting a price ceiling for a good (below the normal market price) results in an excess burden. Demonstrate this, by using supply and demand curves. In addition, show how the imposition of a tax on a substitute good, by affecting the demand for the good with a price ceiling, increases the excess
Prior to 1988, Canada’s tax authorities permitted business meals and entertainment expenses to be fully deducted in calculating taxable income. Since then, the allowed deduction has been reduced to 50 percent of the expense. This affects those who incur such expenses as part of normal business
In Thailand, where commodity taxes account for almost 60 percent of tax revenues, the price elasticities for food, alcohol, and telecommunications are estimated to be -0.10, -0.84, and -0.25, respectively (Chandoevwit and Dahlby, 2007). If the goal of policy is to raise tax revenue with the least
Suppose that Sharlene faces a marginal income tax rate of 35 percent, and if she cheats on her taxes, there is a 2 percent chance that she will be caught. Suppose also that the marginal penalty of tax evasion is 10R, where R is the amount of unreported income (in thousands of dollars). How much
In Canada, a husband and wife are taxed separately on their incomes. In contrast, in the United States the fundamental unit of taxation is the family; regardless of whether the husband or the wife earns an extra dollar, it is taxed at the same rate. Imagine that family utility increases with family
A study by Dahlby and Ferede (2015) provides estimates of the marginal excess burden per additional dollar of revenue in the Canadian provinces (in 2013). For Manitoba, it is 2.07 for the corporate income tax and 0.36 for the general sales tax. Based on these estimates, use the Ramsey rule to
The demand for X is given by X = 100 - 2Px, and its supply is perfectly elastic at Px = 14. The demand for Y is given by Y = 350 - 3Py, and its supply is perfectly elastic at Py = 18. The government aims to raise R dollars by imposing ad valorem taxes tx and ty on the consumption of X and Y. What
A study by Judge and Cable (2004) finds that taller people have higher incomes; every extra inch in height amounts to a predicted salary increase of nearly $800 per year. On the basis of optimal tax theory, does it make sense to tax individuals based on their height rather than their income? Why?
Jack and Jill live alone on an island. Their labour supply schedules are identical and given by L = (1 - t )w, where t is the income tax rate and w denotes the wage. Jill’s wage is 6 and Jack’s is 2. The tax paid by an individual is twL and each receives a transfer equal to half the total
In Adam Smith’s The Wealth of Nations, he describes a “window tax” that was imposed on dwellings in England. The tax per window increased with the number of windows.a. Evaluate this tax in terms of the likely cost of administering it.b. Evaluate it in terms of vertical equity.c. Describe a
According to well-placed sources, in 1994 the Department of Finance was considering a change in the tax treatment of employer-provided dental care plans. Under the policy being considered, the value of the dental care plans would be included in workers’ taxable incomes. Evaluate this proposal
The tax credit for charitable donations rises from 15 percent on the first $200 to 29 percent on donations over $200. Why would the heads of organizations dependent on charitable contributions think it important that the credit be at a rate of 29 percent?
The purpose of this problem is to consider how effective marginal tax rates are affected by various clawbacks, payroll taxes, and surtaxes.a. Consider a family of four (two children, age 10 and 12, and one wage earner with a dependent spouse) whose net income places it in the range of the GST and
Suppose the Working Income Tax Benefit (WITB) tops up a single individual’s income by 25 percent of the amount that employment earnings exceed $3000, up to a maximum payment of $1000.a. Assume that the refundable WITB credit is reduced by 15 percent on the amount of earnings in excess of $11,500.
Brian Mulroney’s 1987 tax reform included a substantial gradual increase in the limit, from $7,500 to $15,500, for contributions to registered retirement savings plans (RRSPs). The interest earned on RRSPs is not subject to income tax until it is withdrawn. Sketch the intertemporal budget
In the mid-1990s, the Japanese government implemented a set of very large, temporary tax cuts. These cuts had very little impact on personal consumption (Watanabe et al., 2001). Is this finding consistent with the life-cycle model of consumer behaviour? If the life-cycle model is correct, and the
Use the life-cycle model to evaluate whether a rational saver would follow this piece of advice: “To compensate for falling interest rates, aim to save more every month.”
Apollo has T hours to allocate between work and leisure. His wage rate is w and he also has nonlabour income equal to a fixed amount, A. The income tax rate is t. Write an algebraic expression for Apollo’s after-tax budget constraint. Illustrate his before-tax and after-tax budget constraints
The U.S. Immigration Act of 1965 imposed severe restrictions on the emigration of Canadians to the United States until the Free Trade Agreement of 1988 (Davies and Winer, 2011). What impact might you expect the restrictions, and their subsequent removal, to have on the elasticity of total labour
An editorial in the Wall Street Journal (2001) argued, “high marginal tax rates . . . discourage incentives . . . to take risks,” The proposition seems plausible. Why take a chance on a risky investment if your gains are going to be grabbed by the tax collector? Use the theory of portfolio
Zach lives two periods, earning $31,500 in the first and nothing in the second. The rate of return on savings is 8 percent. Zach faces a sales tax rate of 5 percent and a tax rate on interest income of 20 percent. His after-tax consumption level in the first period is $16,000. The rest of his
Amy and Shirley both live two periods. Both have earnings of $1,000 in the present and zero in the future. The interest rate is 8 percent. Suppose that they are each subject to an income tax, and Amy’s first period consumption is $200 while Shirley’s is $300. Who has the higher lifetime tax
In the table below, with a GST rate of 5 percent, how much does each producer (a) Collect in GST; (b) Receive as a GST credit; and (c) Remit to the government? Sale value GST collected GST credit GST remitted Sale by producer X to producer Y $200.00 Sale by producer Y to producer
On July 1, 2006, the federal government reduced the GST rate but raised the income tax rate in the lowest tax bracket to help make up for the lost revenues. Discuss the possible effects of this reform on the incentives to save and to work.
Measuring income on an accrual basis creates serious problems for an income tax system. Explain the nature of these problems and how a shift to a personal consumption tax would help to eliminate the problems.
Evaluate the following critique of the Hall-Rabushka flat tax: “The flat tax does not treat all income the same. It taxes only salaries and wages and leaves investment income untouched” (Chait, 1996: A17).
As a result of Brian’s will, $100,000 is paid to his son John at the time of Brian’s death in 2012. The $100,000 is not to be included in the income of John. However, this is not a flaw in the income tax system since the $100,000 was never allowed as a deduction for Brian for income tax
David and Jonathan own identical homes. David has owned his home for many years and paid $100,000 for it. Jonathan purchased his home after a recent property tax increase and paid $80,000. Should the local assessor change the assessed value of Jonathan’s home to maintain horizontal equity?
Residential properties typically face a lower tax rate than commercial and industrial properties. Explain how the allocation of resources might change in a city if it were to raise the tax rate on homes and decrease the tax rate on business properties. What are the efficiency and equity
Opponents argue that taxes on the transfer of wealth will reduce work effort, reduce saving, and reduce the willingness to make risky investments. Whether or not you agree with this assessment, explain why many people, supported by economic theory, think it may not be true.
The City of Ottawa charges the developers of residential housing for the cost of constructing storm sewers, roads, street lights, libraries, police stations, parks, and community recreation facilities. Discuss the efficiency and equity aspects of this policy from the perspective of the property tax
The City of Calgary opened a new airport runway in 2014. To avoid having to close direct road access to the airport from the city’s northeast, the city plans to build a tunnel under the new runway. The cost of the tunnel is about $300 million and is to be financed mainly by an increase in
Suppose Toronto adopted a tax on land value instead of a property tax (while collecting the same revenue). Would downtown parking become scarcer? Would the reform in Toronto have an effect on the value of land in nearby Hamilton? Explain.
Heal (2001, p. 1) notes that when Frederick Law Olmsted, the developer of New York City’s Central Park, was asked how the city would pay for the park, “he responded that its presence would raise property values and the extra tax revenues would easily repay the construction costs. History shows

Showing 1 - 100 of 137

Public Finance In Canada 5th Canadian Edition Harvey S. Rosen, Ted Gayer, Jean-Francois Wen, Tracy Snoddon - Solutions

Step by Step Answers