Income Redistribution Flashcards
Taxation, Benefits
What are the two aspects of income redistribution?
Taxation and benefits.
According to Adam Smith, what are the four canons of taxation?
Equity
Certainty
Convenience
Economy
How does equity play a role in the four canons of taxation?
Taxation must be proportional to income.
How does certainty play a role in the four canons of taxation?
Taxation must be clear and transparent (how to pay, how much to pay, when to pay)
How does convenience play a role in the four canons of taxation?
Timing and method of payment must be convenient for the payee and the one recieving the money.
How does economy play a role in the four canons of taxation?
The cost of collecting taxes must be minimised.
What are means tested benfits?
Benefits which are dependant on incomes.
What are universal benefits?
Benefits which are available to all who are eligable, regardless of income.
What is the difference between means tested and universal benefits?
Means tested benefits depend on incomes whereas universal benefits are not.
What is the danger of benefits?
The poverty trap.
What is the poverty trap?
When work is disencouraged, meaning benefits are greater than the marginal gains of working.
What is a direct tax?
A tax which is payed off of an income or profit of the person who pays it.
What is an indirect tax?
A tax which is payed upon goods/services from the person who purchases it.
What are two examples of direct tax?
National Insurance.
Income Tax
Corporation Tax
Inheritance Tax
What are two examples of indirect tax?
VAT
Duties Tax
Landfill Tax
What is progressive taxation?
When the more you earn, the more tax you pay.
What is regressive taxation?
When the more you consume, the more tax you pay.
Which type of tax is progressive tax more common in?
Direct tax.
Which type of tax is regressive tax more common in?
Indirect tax.
Why are there high markups on certain goods such as alcohol, fuel and tobacco?
Because they are demerit goods - the taxes are in place to repel people from purchasing the product.
What is fiscal drag?
When tax bands do not keep pace with inflation.
Who benefits from fiscal drag? And why?
The government.
They benefit because the tax revenue is higher as more people are paying tax.
What is brain drain?
Taxing the wealthy too much, causing them to migrate out of the country seeking lower taxes.
What are the consequences of brain drain?
It disencourages FDI from the country.
Governments are left with lower tax revenues.
It can stunt economic growth.
