Taxation Flashcards

1
Q

What is Progressive Taxation

A

As income rises - a larger percentage of income is paid

Income Tax in the UK is progressive

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2
Q

What is proportional taxation

A

The percentage of income paid in tax is constant - no matter what the level of income

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3
Q

What is regressive taxation

A

As income rises - a smaller percentage of income is paid in tax

VAT

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4
Q

What is Direct Tax

A

Tax levied on income, wealth and profit

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5
Q

What is Indirect Tax

A

Tax levied on spending

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6
Q

Can indirect tax be passed on by producers

A

Yes depending on PED and PES

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7
Q

Can direct tax be passed on

A

No

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8
Q

What is the Laffer Curve

A

Supposed relationship between economic activity and the rate of taxation which suggests there is an optimum tax rate which maximises total tax revenue

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9
Q

Why might total tax revenue fall if the tax rate increases

A

Increased rates of tax voidance
Increased rates of tax evasion
Brain drain effects
Disincentive effects in the labour market

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10
Q

Evaluation of the Laffer Curve

A

Lower top rate taxes might increase income inequality

Little evidence that high top rates of income is a barrier to inward migration of skilled labour

Many people are on fixed hours / zero hour contracts - tax rates have little impact on work incentives

Less motivation to work if income tax falls

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11
Q

Effect of Taxation and Aggregate Demand

A

Changes in tax rates and tax allowance have direct and indirect effects on the level of AD

Changes in income tax and national insurance have a direct effect on people’s disposable incomes

Changes in corporation tax affect the post-tax profit available for businesses to invest

Changes in employer’s national insurance affect the cost of employing extra workers in the labour market

A change in VAT brings about changes in retail prices and affects the real incomes of consumers

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12
Q

Taxation and Aggregate Supply

A

Changes in tax rates and allowances have a direct and indirect effect on SRAS and LRAS

Changes in VAT affect business costs

Changes in direct taxes can influence work incentives

Changes in business taxes might affect the level of FDI into a country

Taxes can affect the incentive to start a business or to spend money on research and development

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