Chapter 3: Government Microeconomic Intervention Flashcards
Types of Taxes
progressive
regressive
proportional
Incidence of tax
who actually pays the tax// who the burden of tax falls upon
Tax Base
what is taxed
Tax Burden
how much tax is paid
Indirect Tax
VAT/ GST
burden of tax can be shifted from producers to consumers in the form of higher taxes
Direct Tax
Income, corporation, wealth
directly paid by the person who is taxed to the government
Canons of Taxation
equity
convenience
economic
certainty
Maximum price controls
price ceiling
below the equilibrium point
used to encourage consumption
Minimum price controls
price floor
above equilibrium point
used to discourage consumption
Advantages of Direct tax
- economic stabilisation
- progressive
- certain and convenient for tax payer
Disadvantages of Direct tax
discourages:
saving
effort
risktaking
Advantages of indirect tax
- difficult to evade
- can be used to discourage consumption of certain types of goods
- can be adjusted quickly
- does not discourage effort directly
Disadvantages of indirect tax
- regressive
- distorts consumer choice
- may be inflationary
- reduce consumer surplus
Nationalisation
from private sector to public sector// under government controls
Privatisation
transfer resources from public sector to private sector
