Government spending and taxation Flashcards
What is meant by current spending?
Current spending refers to the daily spending of the government e.g, maintaining public services
what is meant by capital spending?
Investment into infrastructure projects
what is meant by welfare spending?
GOvernment spending on benefits and pensions
What is meant by debt interest spending
Spending on government debts
What are the 4 main types of government spending?
Welfare spending
Capital spending
Current spending
Debt interest spending
What are the main reasons for government spending?
- To influence the macroeconomy
- to reduce income inequality
- can correct market failure
How is the macroeconomy influenced by government spending
Government spending increases AD
How can government spending reduce income inequality?
Welfare spending boosts disposable income, boosting consumer expenditure
How can government spending correct market failure?
subsidies keep businesses funded
What are the two main types of taxation
Direct and indirect tax
Provide two examples of direct tax
Income tax
corporation tax
What is income tax
Tax made/taken on income
What is corporation TAX
Taxes paid on business profits
What are the two types of indirect tax
specific
advalorem
Give 3 examples of a specific indirect tax
Cigarette duty
Alcohol duty
sugar TAX
Give an example of an Advalorem tax
VAT
What is a specific tax?
Specific taxes are often fixed amounts of tax paid on each unit of a good/service
What is an ad valorem tax?
A percentage based on the value of the product
Reasons for TAX
- can raise government revenue
- can influence the macroeconomy
- can reduce income inequality
- can correct market failure
- protectionism
What does ART stand for (TAX)
Average rate of Tax
How to calculate ART
TAX paid/income
What is a progressive tax?
A progressive tax is when incomes rise averagr rate of tax also rises
What is a proportional tax
As incomes rise, average rate of tax stays the same
What is a regressive tax?
As incomes rise, average rates of tax falls
