Fiscal Policy - Taxation Flashcards
What are the 4 types of taxation
direct + indirect
progressive + regressive
What is a progressive tax
takes higher percentage of tax from people with higher incomes
What is a regressive taxa
takes higher proportion of tax from people on lower incomes
What are direct taxes
tax based on an income like income tax or national insurance contributions
corporation tax
What are indirect taxes
taxes on spending like V.A.T
paid to the gov through suppliers of the good
What are the advantages of direct tax(4)
progressive tax
cheap and easy to collect
visible to payers
valuable for gov in redistribution
What are the disadvantages of direct tax(3)
unavoidable
can discourage workers if too high
discourage saving for pensions (they are taxed)
What are the advantages of indirect tax (4)
can reduce consumption of demerit goods
raise gov revenue
fairer because consumers have choice
doesn’t create disincentive to wotk
What are the disadvantages of indirect tax (2)
regressive
can contribute to inflation (cost push inflation)
supply will decrease because there is a disincentive to purchase therefore they raise prices
What impact does indirect tax have on a market (graph)
supply shifts inwards because the cost of production increases (they have to buy the good)
so push cost of good onto the consumer
increase price and decrease quantity
What impact does direct tax have on economy
shifts demand inwards because lower disposable incomes
similar to contractionary fiscal policy
What is the impact of a subsidy on a market
supply shifts out because reduction in cost of production
