LS17 - Taxation

Question 1

Types of Taxation

Answer 1

• Progressive taxation - as income rises, larger % of income is paid in tax- income tax
• Proportional taxation - % of income paid as tax is constant so matter level of income
• Regressive taxation - as income rises, smaller % of income is paid in tax -VAT

Question 2

Change in income tax to incentive to work

Answer 2

Higher income tax - less return on work/unemployment benefits may be better off - so less incentive to work
Less income tax - higher return on work - more hours - more incentive to work

Question 3

Laffer curve

Answer 3

Relationship between tax rate and tax revenue - tax revenue is not maximised at 100% as workers are disincentivsed to work, so less tax revenue

Question 4

Direct taxes and income distribution

Answer 4

Progressive taxes - wealithier individuals pay a higher proportion of income back to govt, compared to less wealthy - reduces income inequality

Question 5

Change in tax and real output and employment

Answer 5

Lower taxes - more incentive to work - less unemployment and employed work more hours
Leads to more income and spending - more output - more people required to produce - more employment

Question 6

Change in tax and price level

Answer 6

More tax - less disposable income/profits - less consumption and investment, so AD falls and so does price level

Question 7

Change in tax and trade balance

Answer 7

More tax - less disposable income - fall in demand for imports - so imports fall, net exports rise, deifcit falls/surplus rises.
But depends on PED of imports

Question 8

Corporation tax and FDI

Answer 8

If corp tax rises, less return on profits for TNCs, so less inward FDI

Question 9

Indirect taxes and incentive to work

Answer 9

If VAT rises, people have to work harder to afford the same goods - higher productivity
But if buying is financed through borrowing (credit cards), in long term this willl be unsustainable as debt rises, and interest rates rise