Suppose that the tax system had the following features.

Explain how individuals’ behaviour is affected.

a. Contributions to charity are tax-deductible.

b. Sales of beer are taxed.

c. Realized capital gains are taxed, but accrued gains are not. (When someone owns a share of stock that rises in value, she has an ‘accrued’ capital gain. If she sells the share, she has a ‘realized’ gain.)