sn TsSn the wheat market. 11. Compared t o many western or even Asian countries,

Question

sn TsSn the wheat market. 11. Compared t o many western or even Asian countries, Hong Kong has a very low standard income tax rate ot 15 percent. Based on the low birth rate and the problem o population aging, how will the Hong Kong government budget change in the future? Is it a good idea for the Hong Kong government to increase the income tax rate to, say, 50 percent in order to raise its revenue? Explain. 12. If the Hong Kong government decides to raise the income tax rate to 50 percent in order to cover the huge costs incurred on the elderly, how will it impact the levels of efficiency and equity in Hong Kong? Will there be any underground economic activities? Explain your answer. ell Problems 283

Explanation / Answer

11. The government expenses will increase because of the aging population in the future. There will be more expenses because of healthcare, retirement benefits, etc. to be provided to the aging population. In addition, the government tax revenue will decline because of the aging population. Therefore, the government might face a budget deficit in the future.

I don't think it will be a great idea to increase the income tax by more than 3 folds to 50%. This will make the country hugely inefficient for business. The cost of business will rise up significantly and investment will get reduced in the country. As a result, government revenue will be negatively affected. Rather, the government should focus on increasing the tax base by encouraging businesses to invest in Hing Kong and spur economic activities.

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