Question 2

Alfred, who has personal income tax rate of 40%, holds an oil stock that appreciates in value by 10% each year. He bought the stock one year ago. Alfred's stock broker now wants him to switch the oil stock for a gold stock that is equally risky. Alfred has decided that if he holds on to the oil stock, he will keep it only one more year and then sell it. If he sells the oil stock now, he will invest all the after-tax proceeds of the sale in the gold stock and then sell the gold stock one year from now. What is the minimum rate of return the gold stock must pay for Alfred to make the switch? Relate your answer to the tax on capital gains.

Question 3

Property tax is a tax administered at the local government level in Canada. Is the property tax a regressive tax or a progressive tax in Canada? Explain your answer.

Question 4

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 individuals. Part of the rationale was to give highly productive Canadians renewed incentives for work. Use the graphical model of leisure-income decisions to analyze the rationale.