1.2.9 - indirect taxes and subsidies Flashcards
What is a tax?
A compulsory contribution levied by the government on firms, workers and households.
What are NICs?
National Insurance Contributions, a tax on earnings and self-employed profits.
What is income tax?
Tax on earnings or gross salary (workers)
What is corporation tax?
Firms pay on profits. (19% in the UK)
What is inheritance tax?
Paid on the estate of the deceased, on assets exceeding £325,000. Standard rate = 40%
What are capital gains?
They are paid on any profit incurred from the sale of an asset.
What are indirect taxes?
An expenditure levy imposed by the government on producers. They increase cost of production, decreasing supply (left shift).
What is VAT?
Value added tax, 20%
What is a unit/specific flat rate tax?
A tax which is charged at a fixed amount per unit. Causes a parallel shift in supply.
How do you find the tax incidence?
The tax incidence/size of the levy is the vertical distance between S and S1.
What is an ad valorem tax?
They are set as a percentage of the price and consequently the size of the tax is not uniform causing supply to tilt to the left. A price increases, the tax incidence increases.
What are subsidies?
Payments by governments to producers to reduce the costs of production to increase output.
How does a specific or unit subsidy affect supply?
Lowers the cost of production, leading to an increase in supply from S to S1 (right shift).
How does PED impact indirect taxation?
When PED is inelastic, consumer burden is larger than producer burden. When PED is elastic, producer burden is largest than consumer burden.
How do you find consumer and producer burden for taxes?
The top half of the government revenue area is the consumer burden, the bottom half is the producer burden.
Where do you find consumer and producer benefit for subsidies?
producer benefit is the top half of the area representing cost to the government, consumer benefit is the bottom half
