Choose:

1-The total amount of tax you pay divided by your total income is the
a. Marginal tax rate B. Average tax rate
c. Total tax rate d. Proportional tax rate
2- The equity principle of taxation was propounded by:
A. Adam Smith b. Dalton
c. J.B. Say d. Marshall
3- Customs duties are imposed on commodities as they cross:
a. State boundaries b. District boundaries
C. International boundaries d. Municipal boundaries
4. A budget where there is excess of expenditure over revenue is called:
a. Surplus B. Deficit
c. Balanced d. Zero-based
5- The additional burden (marginal sacrifice) resulting from an additional unit of
taxation goes on --------------.
a. decreasing B. increasing
c. evaded d. avoided
6. The balanced budget principle was advocated by:
a. Keynesians b. Mercantilists
C. Classical school d. Neo-Classical school
7. Which one of the following is not a tax base?
a. Income b. Wealth
C. Utility d. Consumption
8. Which of the following is not a type of direct tax
A. Sales and Service Tax b. Income Tax
c. Petroleum taxes d. Corporate Taxes
9. Tax avoidance is:
a. Illegitimate B. Legitimate
c. Punishable d. None
10. Scope of public finance includes:
a. Public revenue b. Public debt
c. Public expenditure D. All of these

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11. Public Authorities Include:
a. Central Government b. State Government
c. Local Government D. All of these
12. The main point on which public finance can be separated from private finance:
A. Price policy b. Borrowings
c. Secrecy d. Elasticity in income
13. The VAT was first introduced in:
a. India b. Britain
c. USA D. France
14. In the following which is the characteristics of a tax
A. Compulsory b. Optional
c. Forced d. Nationality
15. Which is the main objective of a tax:
a. Increase in consumption b. increase in production
C. Raising public revenue d. reduction in capital formation
16. Among the following canons of taxation which one has been given by Adam
Smith:
a. Uniformity b. Productivity
c. Diversity D. Equity
17. Indirect taxes have an element of:
a. Equitable b. Certainty
C. Economical d. Encourage honesty
18. Direct taxes have the element of:
a. Evasion b. Convenient
C. Progressive d. Economy
19. In proportional tax system, the rates of tax remain:
A. Constant b. Increasing
c. Decreasing d. Zero
20. In the case of regressive tax, the rate of tax---------as income increases:
a. Increases b. Remains constant
C. Decreases d. None
21. Corporate Income tax is the tax levied on:
A. Corporations b. Municipalities
c. Co –operative societies d. Companies

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22. Which of the following is the major source of revenue in India:
a. Direct tax B. Capital Levy
c. Grants in aid d. Indirect tax
23. Which of the following is not a Commodity Tax:
a. Excise duty b. Customs Duty
c. Corporation Tax D. Octroi
24. A duty levied on goods when they entering a town
a. Income tax b. Octroi
C. Agricultural tax d. Professional tax
25. Special Assessment means:
A. A tax on special benefits b. General tax on all people
c. A periodical tax d. Gift tax
26. Who is the father of Public Finance:
a. Dalton b. Pigou
c. Smith D. Musgrave
27. Equals treated equally in taxation leads to:
a. Vertical equity b. Real equity
C. Horizontal equity d. None
28. “The government which taxes the least is the best”, is the belief of:
A. Mercantilists b. Physiocrats
c. Modern d. Classical
29. Incidence of a tax refers to the--------------burden of tax:
a. Initial B. Ultimate
c. Intermediate d. None
30. Incidence of tax means:
a. Direct money burden b. Indirect money burden
C. Actual tax burden d. None of these

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1. A progressive income tax implies that

a. the amount of tax falls with a rise in income

B. the rate of rises with a rise in income

c. both (a) and (b)

d. the rate of tax decreases with a rise in income

Answer:b

2. A forward-shifted tax will affect

a. buyers more than sellers

B. sellers more than buyers

c. buyers and sellers equally

d. government revenues negatively

Answer : a

3. If with the increase in income, the percentage of income collected as tax remains constant, tax will be called

a. regressive

B. progressive

c. proportional

d. neutral

Answer : c

4. Repayment of public debt refers to

a. Discharging duties
b. redemption of public debt
c. Repayment
d. Recovery

Answer : c

5. In case of deficit budget, when the deficits are covered through taxes, that budget is called:

a. unbalanced budget

B. surplus budget

c. balanced budget

d. None of these

Answer: a
 6. The ability to pay principle of taxation is logically most consistent with the normative notion of

a. tax neutrality

B. horizontal equity

c. value – added taxation

d. Vertical equity

Answer :d

7. With a regressive tax, as income

a. increases, tax rate remains the same

B. decrease, the tax rate decreases

c. increases, the tax rate increases

d .Increases, the tax rate decreases

Answer : d

8. The principle of maximum social advantage is concerned with

a. taxation

B. expenditure

c. public debt

d.Both taxation and public expenditure

Answer: d

9. Justice in taxation is best ensured by applying the principle of

a. equal absolute sacrifice
B. equal proportional sacrifice
c. equal marginal sacrifice

d. quid pro quo

Answer : c

10. Agriculture income tax is a source of revenue to

a. central government

B. state government

c. local administration
d. central and state government

Answer: b

11. Ad Valorom means

a. according to value

B. according to weight

c. according to size

d. According to advertisement costs

Answer: a

12. If interest payments are subtracted from gross fiscal deficit, the remainder will be

a. revenue deficit

B. gross primary deficit

c. capital deficit

d. Budgetary deficit

Answer: b

13.Interest payment is an item of

a. revenue expenditure

B. capital expenditure

c. plan expenditure

d.None of these

Answer: a
True/False: Correct the false
1. The ability to pay principle of taxation is logically most consistent with the
normative notion of vertical equality (T)
2. The seller charges VAT to the buyer, and the buyer pays this VAT to the government.
(F) The seller.
3. Direct taxes are inequitable. (F) Equitable
4. Interest payments and servicing of debts are examples of revenue
expenditure. (T)
5. Public debt policy has no connection to economic stability and growth. (F)
It has connection.
6. Public debt management has economic, social and political significance. (T)
7. Capital levy is advocated to repay the debt raised during a war. (T)
8. VAT is a tax on production, so the imposition of such a tax will make saving relatively
more attractive. (F) On consumption.
9. Indirect taxes have special significance to under developed countries. (T)
10. Proportional tax is based on 'higher the income, higher the tax'. (F)
Direct taxes.
11. Income tax is a tax which is levied on individual's total earnings. (T)
12. A wealth tax is a levy upon individuals not on corporations. (T)
13. In the case of indirect taxes, evasion is easy. (F) Not easy.
14. Impact of a tax falls upon the person from whom the tax is collected. (T)
15. Vertical equity is a normative concept, whose definition can differ from
one user to another. (T)
16. Sacrifice of indirect tax is greater than direct tax of the same amount. (T)
17. Indirect taxes are regressive in nature (T)
18. VAT applies to all provisions of goods and services. (T)
19. Indirect taxes bring justice to the poor. (F) Direct taxes.
20. Direct taxes help in reducing inequalities. (T)
21. Unproductive debt does not yield any income. (T)

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22. Vertical equity suggests that taxpayers in similar circumstances should
bear a similar tax burden. (F) Horizontal equity.
23. In indirect tax, the burden can be shifted to another person. (T)
24. The impact and incidence of indirect taxes are on the same person. (F) Not
on the same person.
25. In developing countries, indirect taxation brings more revenue than direct
taxation. (T)
26. Public finance is not important for the growth and development of a country. (F) Very
important
27. The government increases both aggregate demand and aggregate supply to overcome
form inflation. (F) Deflation
28. Additional indirect taxes levied on harmful commodities like cigarettes,
alcohol etc. (T)
29. Poor consumers can’t reveal their willing’s and market mechanism
effectively work. (T)
30. From VAT Advantages, it is based on consumption and encourages saving. (T)
31. Taxation systems should be flexible and dynamic. (T)
32. Fines and Penalties are commercial non-tax revenues. (F) They are
administrative non-tax revenues.
33. During inflation, the government adopt Contractionary fiscal policy. (T)
34. A wealth tax is a levy upon individuals not on corporations. (T)
35. Public finance deals only with the finance of the government. (T)
36. External debt creates more burden than internal debt. (T)
37. The government imposes more taxes on more desirable goods. (F) Less taxes.
38. Equity is not important in tax policy framework. (F) Important.
39. In direct tax, the burden can be shifted. (F) can’t be shifted.
40. A progressive income tax implies that the amount of tax falls with a rise in
income. (F) Regressive.

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Long Questions:
1. What is the Meaning of Public Finance

Public finance is the branch of economics that study the role of

the government in the economy, It studies the finances of the
Government.
It is made of two words as public and finance. The term public
means government and finance means science of management
of money. Thus, public finance is the study of allocation and
management of resources and technology for achieving the
goals of public organization. However, literally it seems to have
narrow meaning but its scope and definition has been widening
and changing through the time.

2. Discuss the various sources of public revenue.

3. Explain the various sources of public revenue.

4. Compare between direct and indirect taxes.

Multiple Choice Questions

1. The objective of taxation by the Government are:
a. Raising revenue for the state
b. To maintain economic stability
c. To remove disparities in the distribution of income
D. All of the above

2. Which of the following is not a direct tax?

a. Personal Income Tax
B. Service tax
c. Wealth Tax
d. Corporate Income Tax

3. Which of the following is not an indirect tax?

a. Sales tax
b. Custom duty
c. Excise duty
D. Gift tax
Essay:

What is the origin of public finance?

The existence and the development of the public finances is indissolubly
connected with the emergence and development of the state and of the use of
money and the value of the forms in the distribution of the gross domestic
product (or national income). … Conceptually, the word “finance has its origin
in Latin.

What is the definitions of tax?

Tax is a compulsory contribution to state revenue, levied by the
government on taxpayer’s income and business profits or value added to the
cost of some goods, services, and transactions.
Tax is defined as compulsory contribution to the state paid by individuals
or legal entities that are enforceable under the Act, without getting direct
benefits and used by State for maximum benefit and prosperity of the people.

What’s the definition of Tax according to Adam Smith?

According to Adam Smith, Tax is a compulsory payment levied by the
government on individuals or companies to meet the expenditure which is
required for public welfare.