Income Redistribution

Question 1

What are the two aspects of income redistribution?

Answer 1

Taxation and benefits.

Question 2

According to Adam Smith, what are the four canons of taxation?

Answer 2

Equity
Certainty
Convenience
Economy

Question 3

How does equity play a role in the four canons of taxation?

Answer 3

Taxation must be proportional to income.

Question 4

How does certainty play a role in the four canons of taxation?

Answer 4

Taxation must be clear and transparent (how to pay, how much to pay, when to pay)

Question 5

How does convenience play a role in the four canons of taxation?

Answer 5

Timing and method of payment must be convenient for the payee and the one recieving the money.

Question 6

How does economy play a role in the four canons of taxation?

Answer 6

The cost of collecting taxes must be minimised.

Question 7

What are means tested benfits?

Answer 7

Benefits which are dependant on incomes.

Question 8

What are universal benefits?

Answer 8

Benefits which are available to all who are eligable, regardless of income.

Question 9

What is the difference between means tested and universal benefits?

Answer 9

Means tested benefits depend on incomes whereas universal benefits are not.

Question 10

What is the danger of benefits?

Answer 10

The poverty trap.

Question 11

What is the poverty trap?

Answer 11

When work is disencouraged, meaning benefits are greater than the marginal gains of working.

Question 12

What is a direct tax?

Answer 12

A tax which is payed off of an income or profit of the person who pays it.

Question 13

What is an indirect tax?

Answer 13

A tax which is payed upon goods/services from the person who purchases it.

Question 14

What are two examples of direct tax?

Answer 14

National Insurance.
Income Tax
Corporation Tax
Inheritance Tax

Question 15

What are two examples of indirect tax?

Answer 15

VAT
Duties Tax
Landfill Tax

Question 16

What is progressive taxation?

Answer 16

When the more you earn, the more tax you pay.

Question 17

What is regressive taxation?

Answer 17

When the more you consume, the more tax you pay.

Question 18

Which type of tax is progressive tax more common in?

Answer 18

Direct tax.

Question 19

Which type of tax is regressive tax more common in?

Answer 19

Indirect tax.

Question 20

Why are there high markups on certain goods such as alcohol, fuel and tobacco?

Answer 20

Because they are demerit goods - the taxes are in place to repel people from purchasing the product.

Question 21

What is fiscal drag?

Answer 21

When tax bands do not keep pace with inflation.

Question 22

Who benefits from fiscal drag? And why?

Answer 22

The government.
They benefit because the tax revenue is higher as more people are paying tax.

Question 23

What is brain drain?

Answer 23

Taxing the wealthy too much, causing them to migrate out of the country seeking lower taxes.

Question 24

What are the consequences of brain drain?

Answer 24

It disencourages FDI from the country.
Governments are left with lower tax revenues.
It can stunt economic growth.