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    Public Finance and Taxes

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    1. The increased suburbanization of urban population was an important social phenomenon of the 1960s and 1970s in metropolitan areas in the United States. Explain how the decision to migrate to another jurisdiction in a metropolitan area is influenced by policies of central city and suburban government policies. What steps could central city government use to encourage the return of the middle-income class to the city? Explain why regressive taxes may be necessary to retain middle- and upper-income residents in the city.

    2. A 10-percent tax is levied on the sale of soft drinks. This tax is collected from the sellers of the drinks. A critic of the tax argues that the sellers will shift the entire tax to the buyers and therefore be no worse off. Evaluate this argument by showing the market conditions that would have to prevail for the prediction to be correct. Indicate under what circumstances the tax will be shared by the buyers and the sellers of soft drinks.

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    Solution Preview

    1. The decision to migrate to another jurisdiction in a metropolitan area is influenced by policies of central, city, and suburban government policies. The government keeps tax rates low for suburban homes. The prices of utilities are also lower for suburban areas. The city and suburban governments charge lower taxes on utilities in suburban areas. In addition, the utilities are often subsidized by the government in the suburban areas. In contrast, residence related taxes are higher in the city. The house tax is higher, and the utilities cost more. Instead of subsidizing utilities, the city governments tax utilities. As the cost of residence in the city increases, people move to suburban areas. Over a period of time the policies of the city and suburban government has been to charge higher rates from ...

    Solution Summary

    The answer to this problem explains public finance and tax on soft drinks. The references related to the answer are also included.