4.5.2 Taxation Flashcards
1
Q
What is progressive tax
A
- the more you earn, the more money you get taxed
2
Q
What is proportional tax?
A
- everyone is taxed the same, regardless of income
3
Q
What is regressive tax?
A
- lower income earners pay more
4
Q
What is the laffer curve?
A
- shows the relationship which suggests there is an optimum tax rate which maximises total tax revenue
5
Q
Why might total tax revenue fall if the tax rate increase?
A
- increased rates of tax avoidance = greater incentives to seek out tax relief, make use of tax allowances
- greater incentives to tax evade
6
Q
How will tax impact incentive to work?
A
- higher tax rate on income may reduce incentive to work out to engage in productive activities
7
Q
How will tax impact tax revenues: laffer curve?
A
- once optimal level is reached
- higher tax rates can discourage economic activity = decrease in tax revenue
8
Q
How will tax impact income distribution?
A
- progressive tax systems can help reduce income inequality by imposing higher tax rate on higher-income individuals
- however, can allow more low-income individuals have more disposable income and make it more easier for them to afford basic necessities
9
Q
How will tax impact real output and employment?
A
- lower tax rates on businesses and investments can stimulate economic growth and job creation
- in which can increase real output and employment
10
Q
How will tax impact price level?
A
- increases in indirect tax = can influence price level due to the increasing costs of goods and services = can lead to higher consumer prices
- can increase costs of production = lead to cost - push inflation
11
Q
How can tax impact the trade balance?
A
- higher tariffs can reduce imports = which means there’s an increase in exports = which may improve the trade balance
- however, can lead to other countries retaliating = trade war
12
Q
How will tax impact fdi flows?
A
- countries with low corporation taxes can attract businesses and investors = attract more fdi
