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      Question

       According to the Principle of Equal Marginal Sacrifice

      proposed by Hugh Dalton, an optimal income tax structure is one where:
      A The total tax paid by every taxpayer is the same. Correct Answer Incorrect Answer
      B The loss of utility from the last dollar of tax paid is the same for every taxpayer. Correct Answer Incorrect Answer
      C The proportion of income paid as tax is the same for every taxpayer (Proportional Tax). Correct Answer Incorrect Answer
      D The total tax revenue is maximized without inducing a reduction in labor supply. Correct Answer Incorrect Answer

      Solution

      Solution: The Principle of Equal Marginal Sacrifice is an equity principle used to design optimal tax systems. · It is based on the idea of minimizing the total sacrifice (utility loss) suffered by society from raising a given amount of tax revenue. · It concludes that the tax system should be structured so that the marginal utility of income lost due to taxation is equal across all taxpayers. · Assuming the marginal utility of income is diminishing, this principle necessarily leads to a progressive income tax system, where higher-income individuals pay a greater proportion of their income in taxes.

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