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Eae301: Taxation Economics And Policy Question Paper

Eae301: Taxation Economics And Policy

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF ECONOMICS
EAE 301:
TAXATION ECONOMICS AND POLICY
DATE: Tuesday, 27th March, 2012

TIME: 4.30 p.m. – 6.30 p.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
Answer question ONE and any other TWO questions. Question ONE carries 30 marks
while the rest carry 20 marks each.
Question One (Compulsory)
a)
Distinguish between the following terms

i)
Personal taxes and in rem taxes

(2 marks)

ii)
Statutory incidence and effective incidence of a tax
(2 marks)

iii)
Tax evasion and tax avoidance

(2 marks)

iv)
Vertical equity and horizontal equity in taxation

(2 marks)

v)
Tax burden and tax liability

(2 marks)
b)
Explain and illustrate excess burden of taxation

(5 marks)
c)
The government is interested in taxing sugar in order to increase its tax revenue.
The market is currently at equilibrium at a price of Ksh. 10 per kg and sales of
1000 kgs per month. Suppose the own price elasticity of demand at the
equilibrium point is 0.1 and the own price elasticity of supply at this point is 0.2.
Now the government announces the tax measure with the new market price to be
maintained at Ksh. 15 per kg.
Required:
i)
Compute and show the suppliers and buyers tax burden
(5 marks)
ii)
How much revenue will the government get from the new tax measures?

(5 marks)

Page 1 of 2

iii)
Calculate the deadweight loss of the tax (excess burden of the tax).

(5 marks)

Question Two
a)
Distinguish between taxable capacity and tax effort

(4 marks)
b)
Explain how each of the following factors influence tax effort in developing

countries.

i)
Share of agriculture in GDP

(2 marks)

ii)
Share of manufacturing

(2 marks)

iii)
Openness of the economy

(2 marks)
c)
Using examples of types of taxes levied in your country, explain the conditions
under which benefit tax criteria is feasible

(10 marks)

Question Three
a)
Use the partial equilibrium approach to describe the effect of an increase in
income taxation on labour supply.

(10 marks)
b)
Explain the characteristics of a good tax system

(10 marks)

Question Four
a)
Explain the issues that motivate and shape tax reforms in developing countries

(12 marks)
b)
Citing appropriate examples, describe the causes of tax evasion in Kenya

(8 marks)

Question Five
a)
Explain the concept of tax shifting

(5 marks)
b)
What are the limitations of partial equilibrium approach to the analysis of tax

incidence

(6 marks)
c)
Explain how an increase in corporation tax would affect economic activity in a
country

(9 marks)

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Eae301: Taxation Economics And Policy Question Paper

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