Fiscal policy pt2

Question 1

Types of taxes

Answer 1

Direct and indirect taxes

Question 2

Direct taxes

Answer 2

Income earner pays directly to government (income tax, NI, Corporation tax)

Question 3

Indirect taxes

Answer 3

“Can be passed on”. Levied on goods and services before it reaches the customer (VAT, excise duties)

Question 4

Tax systems

Answer 4

Progressive, proportional and regressive taxation

Question 5

Progressive taxation

Answer 5

Tax rates increases as incomes increase (UK income tax bracket)

Question 6

Regressive taxation

Answer 6

Individuals taxes fall as their income rises e.g. taxes the rich less. More incentive to work harder but creates inequality

Question 7

Proportional taxation (flat tax)

Answer 7

Everyone pays same proportion of tax regardless of income. Can simplify a tax system but less revenue overall than a variable system. e.g. VAT