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Eae614: Public Sector Economics Ii Question Paper

Eae614: Public Sector Economics Ii

Course:Ph.D In Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF DOCTOR OF
PHILSOPHY IN ECONOMICS

EAE 614: PUBLIC SECTOR ECONOMICS II

DATE: FRIDAY 30TH MARCH 2012
TIME: 9.00 A.M - 12.00 P.M

INSTRUCTIONS
Answer ALL Questions.

Q.1) Assume there are two goods X and Y. derive the expression for excess burden of a

selective exercise tax on:
(a)
Good X in terms of ex, Px, X, and tx where ex = Price elasticity of the

compensated demand for good X, Px = Prince of good X, X = Quantity of the

good X consumed and tx = the rate of tax on good X.

(3 marks)

(b)
God Y in terms of ey, Py, Y, and ty where ey = Price elasticity of the

compensated demand for good y, Py = Prince of good Y, Y = Quantity of the

good Y consumed and ty = the rate of tax of good Y.

(2 marks)

(c)
Assuming that there are no cross-effects between these two goods (X and Y), state

and derive:

(i)
The inverse elasticity rule

(5 marks)

(ii)
State and derive the Ramsey rule

(5 marks)

Page 1 of 2

(d)
Using your country’s experience, discuss the circumstances under which Ramsey

rule is applicable in an economy.

(10 marks)

Q.2) Suppose that the government levies a tax on earnings (w) at rate t. The reduces the
reward for working an hour from $w to $(1-t) w. Using illustrations, discuss the
conclusion that a rational individual always reduces labour supply in response to:

(a)
A Progressive income tax

(15 marks)

(b)
A Proportional income tax

(10 marks)

Q.3) (a)
There should be rules for allocating tax revenues among jurisdiction to avoid
double taxation at all. In you opinion, which layer of government should be
assigned the responsibility for the following taxes and why?
(i)
Value-added tax

(3 marks)
(ii)
Corporate income tax

(3 marks)
(iii)
Personal income tax

(3 marks)
(iv)
Property and land tax

(3 marks)
(v)
Taxes on natural resources

(3 marks)

(b)
Public debt literature argues that debt relief in itself cannot reverse the downward

slide and return countries to a path of sustained growth. Discuss the critical

factors necessary for breaking the vicious cycle of debt in Africa. (10 marks)

Q.4) (a)
Using you country experience, illustrate and explain the effects of taxation on

investment.

(13 marks)

(b)
Using you’re your country experience, illustrate and explain the effects of

taxation on savings.

(12 marks)
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Eae614: Public Sector Economics Ii Question Paper

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