2.6.2 Fiscal Policy - Taxation Flashcards
define taxation
the process by which governments collect revenue from individuals, businesses and other entities to finance government spending
give four reasons for taxation
- finance government spending
- redistribute income and wealth
- stabilise economy
- regulation and incentives
what are Adam Smith’s Canons of Taxation
- fairness
- certainty
- convenience
- efficiency
define direct taxes
a tax on income and wealth. the tax liability cannot be passed on to someone else so is paid by the individual/firm
give examples of direct taxes
income tax, corporation tax, NICs
define indirect taxes
a tax imposed on expenditure on goods and services. initially paid by the producer - can be passed on to final consumer
give examples of indirect taxes
VAT, excise duties
what is the tax base
the base of what is taxed and who is taxed
what is taxed
- income
- wealth
- spending on G+S
- pollution
- data/financial transactions
who is paying tax
- households
- businesses
what is the micro incidence of taxes
who ultimately bears the economics burden of a tax
what is the macro tax burden
the total amount of taxes collected by the government as a percentage of GDP
what is income tax
a tax levied on various types of income, including employment, rental income, interest, dividends and pension income
what effect does the UK’s freezing of personal allowance have
causes fiscal drag when real incomes rise
is the UK income tax system regressive or progressive
progressive
what are national insurance contributions
paid by employees, employers and the self-employed, and are used to help fund the state pension and welfare benefits
what is VAT
an indirect tax charged on the purchase of many goods and services
what is corporation tax
raised from the taxable profits of limited companies and other organisations, after considering various deductions and allowances
what happened in April 2023 to corporation tax
increased from 19% to 25% on profits over £250,000
define progressive tax
a tax that takes a higher proportion of income as income rises, so higher earners pay a higher tax burden
define regressive tax
a tax that takes a higher proportion of income as income falls
define proportional tax
a tax that takes the same proportion of income regardless of the level of income
