Fiscal Policy Flashcards
4 Surplus characteristics?
Higher taxes/lower spending
Higher household debt
Increased ability in future crisis
Lower investment from public expenditure
5 Deficit characteristics?
Increased borrowing Debt interest payments increased AD Increased IR to encourage bond purchasing Crowding out
6 Main types of UK tax
Income (20%/40%) National insurance VAT/consumption Excise duties Corporation tax (21%) Stamp duty (Houses and shares)
Examples of stealth taxes
£91bn in tax rises over 5 years
Indirect taxes
Tax burden passed on to final consumer
4 Advantages of Indirect taxation
Can change pattern of demand by varying relative prices
Hypothecation
Easier to adjust
Incentive to save
5 Disadvantages of indirect taxation
Regressive tax Can cause cost push inflation Incentives bootlegging Revenue uncertain when consumer spending is changing Loss of consumer/producer surplus
Direct taxes
Paid direct government
3 advantages of direct taxation
Equitable
Certain
Productive
3 disadvantages of direct taxation
Inconvenient
Evadable
Disincentive to save or earn more
Example of tax evasion
2011 Starbucks paid no tax but made £380m revenue
10 ICAEW tenants
Statutory Certain Simple Easy to collect Targeted Constant Subject to consultation Regularly reviewed Fair and reasonable Competitive
Horizontal equity
People with same economic situation should get equal treatment
Vertical equity
People better off should pay more (progressive tax)
Benefit principle of taxation
Government spending be met by people who contribute (poll tax)
