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government justified tax preferences

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What are tax preferences? How does the government justify tax preferences ?

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Tax preferences refer to those items that are coded in the tax law that the tax payer must include when computing the Alternative Tax Rate. These items could include: personal exemptions, private activity bond interest, depreciation of property, intangible drilling costs, municipal bond interest and many other ...

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The solution explains tax preference. Government justified tax preference is discussed.

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Explain why, in the microeconomics view of the world, the operation of the private market as a default, maximizes economic efficiency--hence, why government intervention on efficiency grounds has to be specifically justified by particular circumstances.

The answers should be 1 short paragraph for each subpart.

a) Explain why, in the microeconomics view of the world, the operation of the private market as a default, maximizes economic efficiency--hence, why government intervention on efficiency grounds has to be specifically justified by particular circumstances.

b) What are the 3 specific circumstances, where the operation of private markets does not maximize economic efficiency, hence, where government intervention is conceptually justfied on efficiency grounds?

c) Picking 2 of the 3 examples from part (b), draw diagrams which show how the market responds to the optimal government intervention designed to correct the efficiency problem, and explain, with appropriate lettering in the figures,, the net economic effects on all of the affected parties, and the net efficiency effect that results when the "market failure" is fixed through government intervention.

d) Explain the conservative critique of the accounting result obtained in part (C), and the more general critique of the philosophy that government intervention is justified to fix the efficiency probblem in such cases. Please see attached handout on "market failure" versus "government failure" for explanation of these 2 terms.

Thank you for your help! If you have questions about the deadline or credit value, please send me a note!

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