Question One (Compulsory)
a) Distinguish between the following terms. (15 marks)
i) Tax burden and excess burden of taxation.
ii) Horizontal equity and vertical equity
iii) In rem tax and ad valorem tax
iv) Tax shifting and tax incidence
v) Absolute incidence and differential incidence
b) Describe four methods of measuring the size of public sector. (8 marks)
c) The government wants to raise a total revenue of 2 billion to assist it in
implementing Project. To realize this increased need for funds the finance has imposed excise cigarettes tax of Kshs. 8. Calculate the
amount of tax burden borne to consumers if the Supply and Demand schedules for
cigarette are defined as follows
Qd =250 – 5P
Qs = -150 + 35P
(7 marks)
Question Two
a) Describe important factors to consider in designing a tax system. (10 marks)
b) Under what two conditions is benefit taxation feasible. (2 marks)
c) What are the four reasons for taxation based on ability to pay of individual in
developing economies. (8 marks)
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