Public Economics Questions and Answers

Answer: B

The committees are matched with their chairmen as follows. The Committee on Taxation of Agricultural Wealth and Income (1972) was headed by K.N. Raj, the Direct Taxes Enquiry Committee (1970) by K.N. Wanchoo, the Tax Reform Committee (1991) by Raja J. Chelliah and the Indirect Taxation Enquiry Committee (1976) by L.K. Jha.

That gives a-4, b-3, c-1 and d-2. The other codes swap the chairmen, for example making Wanchoo head of the committee on agricultural wealth.

Answer: A

The chronological order of introduction is income tax (1860), gift tax (1958), service tax (1994) and banking cash transaction tax (2005), which is II, IV, I, III.

The other orders put the banking cash transaction tax or the service tax before the gift tax, which does not agree with the dates. Income tax is the oldest, so every order that does not begin with II or that places IV first is wrong.

Answer: D

Sukhamoy Chakravarty did not work on estimating black money in India. He is known for work on planning and growth models. N. Kaldor, D.K. Rangnekar and O.P. Chopra all prepared estimates or reports on black money.

So the person who did not work on the subject is Chakravarty, and the other three names are wrong for this 'not worked' question. Chakravarty chaired the committee on the working of the monetary system and is remembered for planning, which is a different area from the study of unaccounted income.

Answer: A

The medium term Fiscal Policy Statement of the Union Budget 2013-14 set the target for total outstanding liabilities at the end of 2015-16 at 42.3 per cent of GDP, as the key shows.

The other figures, 44.5, 41.1 and 47.8, are not the target in the statement, and they are close enough to be mistaken for it. The statement sets this as a ceiling to be reached by the end of the medium term, as part of the path of fiscal consolidation under the FRBM framework.

Answer: D

The method of rescheduling the debt burdens of the States was not a term of reference of the Thirteenth Finance Commission. The terms were the distribution of tax proceeds between the Union and the States, the principles for grants-in-aid, and measures to augment the Consolidated Fund of a State to support Panchayats and Municipalities.

The first three options follow Article 280 and the order of reference, so they are genuine terms. A debt relief aspect was handled separately, so the last is the one that was not a term.

Answer: D

The chronological order is the Taxation Enquiry Commission (Mathur Commission, 1953), the Direct Tax Enquiry Committee (Wanchoo Committee, 1971), the Indirect Tax Enquiry Committee (Jha Committee, 1977) and the Tax Reforms Committee (Chelliah Committee, 1991). This is III, IV, I, II, option (D). The other options put the Chelliah or Jha committee before the Wanchoo committee. The committees were set up at different times to review direct and indirect taxes, and their order of appointment is what the question asks.

Answer: C

In zero base budgeting every item of expenditure is challenged in a pre-budget review (I) and no minimum level of expenditure is taken as given (II). Statements III and IV describe incremental budgeting, in which expenditure is increased marginally and most items are taken for granted. So I and II are correct, option (C). The other options include III or IV. Zero base budgeting forces departments to justify their whole budget each year, instead of only the increase over the previous year.

Answer: D

The correct matching is I-3, II-4, III-1, IV-2. Optimal income taxation is linked in the list with F. Ramsey, whose work on optimal taxation set the base for the theory, An Economic Theory of Politics is the book by Anthony Downs, local public goods is Charles Tiebout's idea of voting with the feet, and zero base budgeting is associated with Peter A. Phyrr. The code 3 4 1 2 is option (D). The other options give at least two authors the wrong subject, for example giving local public goods to Downs.

Answer: C

Evasion of tax is tantamount to the absence of taxation, since the evader pays nothing and the burden is not shifted or transformed, it is simply avoided illegally. Shifting passes the burden to another person, tax transformation changes the form of the burden, and capitalisation reduces the value of an asset. So (C) is correct. Legal avoidance is different, as it uses the loopholes of the law, but evasion breaks the law and escapes tax altogether.

Answer: C

Colin Clark argued that for most countries the safe upper limit of taxation is 25 per cent of national income, beyond which inflationary pressure tends to appear. The limits of 40, 30 and 20 per cent are not his figure. The answer is (C). He tested it against the experience of several countries, and found that heavier taxation led to a rise in prices.