Taxation Flashcards
what are indirect taxes
taxes imposed on purchasing goods or services[ not based on income]
name the two types of taxation
specific taxes . Ad valorem taxes
what are specific taxes
a fixed amount that’s charges per unit of a good, no matter what the price of the good is
give an example of a specific tax scenario
a set amount of tax could be put on bottles of wine regardless of their price
what are Ad valorem taxes
taxes charged as a proportion of the price of a good
give an example of an Ad valorem tax scenario
a 50 percent tax for a 10 pound product would mean it’s 5 pounds/ for a 100 pound product it’s 20 pounds
do indirect taxes shift the supply curve to the left or right and why
left as costs of producers increase
in a specific tax diagram, does a specific tax cause a parallel or not parallel shift of the supply curve
parallel
in a specific tax diagram, why is the shift of the supply curve parallel
the tax is the same fixed amount whether the price of the good is high or low
In an Ad valorem tax diagram, is the shift of the supply curve parallel or non parallel
non parallel
In an Ad valorem diagram, why is the shift of the supply curve non parallel
the tax is bigger on higher priced goods, smaller on smaller priced goods
do governments put extra indirect taxes on goods with negative or positive externalities
negative externalities
name 3 goods with negative externalities that governments often put extra indirect taxes on
petrol , alcohol , tobacco
Governments may use multiple indirect taxes [ both direct and ad valorem] on one item. give an example of how this happens in the UK
in UK , cigarettes have a SPECIFIC TAX called excise duty and AD VALOREM tax on their retail price
what is the aim of a tax
to make the producer and / or consumer of the product cover the costs of its externalities
the taxes make revenue for the government. what is then done after this/ give an example too.
the gov then uses the tax rev to offset the effects of the externalities . e.g. the rev generated from a tax on alcohol could be used to pay for additional police time needed to deal with alcohol- related crime
besides excise duty on cigarettes , what is another SPECIFIC TAX example in the UK/ what is its aim
landfill tax / aim is to offset the impact of landfill on the environment
who is charged landfill tax as an environmental tax
local authorities or firms that dispose tax at landfill sites
how are landfill taxes set/ give an example
set at n amount which attempts to reflect the full social and external costs of landfills / e.g. pollution released from landfill sites
what should landfill tax encourage/ what does this then mean
encourages recycling / which in turn reduces the negative externalities caused by landfill that harm the environment / people
what is a disadvantage of landfill taxes
fly - tipping has increased by firms to avid having to pay the tax
what is fly- tipping
illegal dumping of waste on land that is not designated for waste disposal, e.g. farmland and roadsides
On the diagram which shows the total amount of tax paid, does the consumer of firm pay more tax in general
consumer
what does the amount of tax passed on to the consumer depend on
the price elasticity of demand of the good
If demand for a good is price inelastic, what happens tax wise
most or all of the extra cost is likely to be passed on
If demand for a good is price elastic, what is the producer most likely to do
take on most of the extra cost
give 2 advantages of taxes
1- reduces demand for goods with negative externalities / 2- If demand isn’t reduced, there’s still the benefit that the revenue gained can be used by gov to offset externalities
give 2 advantages of indirect taxes
1- reduces demand for goods with negative externalities / 2- If demand isn’t reduced, there’s still the benefit that the revenue gained can be used by gov to offset externalities
Give 5 disadvantages of indirect taxes
1- Can be difficult to put a monetary value on the ‘cost’ of the negative externalities 2- for goods where demand is price inelastic, the demand isn’t reduced [ unfair for consumer] 3- firms may choose to relocate abroad to avoid taxes which reduces employment and means less tax rev 4- Increase cost of production which means less supply so less international competitiveness 5-the gov may not wisely spend the taxes on demerit goods [ a good or service with negative externalities] on reducing the effects of their externalities
