1:2 The characteristics of a "good tax" Flashcards
What are the 4 cannons of taxation?
Equitable - fair in its impact
Certain - how much you pay
Convenient - easy for taxpayers to pay
Economically efficient - cost as little to administer/ apply as possible
What are other features of a good tax system? (2)
Simplicity
Flexibility - adjust to the economic situation
What is attribution theory?
Where you attribute your behaviour based on what people around you are getting away with.
Horizontal equity?
Similar positions, taxed in similar ways
Vertical equity?
Different positions, taxed in different ways
Problems with horizontal equity (3)
Difficult to apply because:
How do you determine same position? e.g. income v wealth
Who says what is comparable - comparing earned with investment income
What about timing - over what period of time should tax burden equate?
Problems with Vertical equity (4)
Who decides who pays tax at different rates?
How are differences to be measured?
How much should the difference be?
How can a tax system be designed to ensure this difference is reflected and maintained
What is the benefit approach?
Taxes are levied in proportion to the benefit received
Could be used as an earmarked tax (specific purpose)
What is the ability to pay approach?
People pay what they are able to pay which leads to vertical equity and a progressive tax system
Certainty
The taxpayer should know how much tax they are paying and it should not be arbitrary.
Convenience
Taxes should be levied at a time and place that are the most convenient for the taxpayer
Efficiency (2)
Effective collection mechanism to maximise the amount of tax for the government
A tax that does not distort economic decisions of taxpayers.
Flexibility
Designed to change or be easy to change as economic circumstances change
What happened with the Poll tax
A community charge that taxed all people over 18 living in the community introduced by Margaret Thatcher which lead to riots because the tax was considered unfair.
Advantages and Disadvantages of Income as a tax base (4) (4)
Equitable
Progressive
Flexible
Ability to pay
Definition of income
Progressive
Disincentive to work
Complex
