Chapter 12 Flashcards
what are government expenditures?
federal, state, and local government outlays for goods and services, including transfer payments
how has the governments share of total economic activity changed?
The government’s share of total economic activity has generally increased since World War II ended in 1945. Most of the growth in combined government expenditures as a percentage of GDP reflects rapidly growing federal government transfer programs
what is the benefits-received principle?
The concept that those who benefit from government expenditures should pay the taxes that finance their benefits
What is the ability-to-pay principle?
The concept that those who have higher incomes can afford to pay a greater proportion of their income in taxes regardless of benefits received
What is progressive tax?
a tax that charges a higher percentage of income as income rises
how do you calculate the average tax rate?
the tax divided by the income.
avg tax = total tax due / total taxable income
what is the marginal tax rate and how do you calculate it?
the fraction of additional income paid in taxes.
Marginal tax rate = change in taxes due / change in taxable income
what is regressive tax rate
a tax that charges a lower percentage of income as income rises
what is a proportional tax?
a tax that charges the same percentage of income, regardless of the size of income. Also called a flat-tax rate or simply a flat tax
what is public choice theory?
the analysis of the governments decision making process for allocating resources
what is benefit-cost analysis?
the comparison of the addition rewards and costs of an economic alternative
rationally a profit-maximizing firm follows the marginal rule and procedures additional units so long as the marginal benefit exceeds the marginal cost
profit max
what is rational ignorance?
the voters choice to remain uninformed because the marginal cost of obtaining information is higher than the marginal benefit from knowing it
How does the united states’ tax burden differ from other countries?
tax burden measured by taxes as a percentage of GDP is lighter in the United States than in many other advanced industrial countries
how are federal tax revenues collected?
primarily from individual income taxes and social insurance taxes
