Ch. 10: The Government in the Economy: Taxation and Regulation Flashcards
payroll tax/social insurance tax
a tax on wages that employers are required to withhold from employees’ pay.
Corporate income tax
taxing profits earned by corporations.
excise taxes
taxes paid when purchasing specific goods such as alcohol, tobacco, and gasoline.
Sales taxes
paid by a buyer, as a percentage of the sale price of an item.
Transfer payments
payments from the government (which are not made as a payment for the provision of a good or service) to certain groups, such as the elderly or the unemployed.
progressive tax system
tax rates increase with taxable base incomes, so that the rich pay higher tax rates than the less well-to-do.
average tax rate
total tax paid divided by total income earned.
marginal tax rate
how much of the last dollar earned the household pays in taxes.
proportional tax system
households pay the same percentage of their incomes in taxes regardless of their income level; in other words, the marginal and average tax rates do not vary with income.
regressive tax system
the marginal tax and average tax rates decline with income so that low-income households pay a greater percentage of income in taxes than do high-income households.
tax incidence
refers to how the burden of the tax is distributed across various agents in the economy.
Regulation
refers to actions by the federal or local government directed at influencing market outcomes, such as the quantity traded of a good or service, its price, or its quality or safety.
direct regulation (command-and-control regulation
refers to direct actions by the government to control the amount of a certain activity.
price ceiling
is a cap on the price of a market good or service.
price floor
a lower limit on the price of the product or service.
