Taxation 4.5.2 Flashcards
What are the 2 types of indirect tax
Specific Tax
Ad Valorem tax
Define Specific tax
Fixed amount on each unit sold
Define Ad valorem tax
Percentage of price of good
What are the 3 ways of implementing tax
Progressive tax
Regressive tax
Proportional tax
What are the 6 effects of changes in tax
Incentives to work
Income distribution
Price level
Output and employment
Trade balance
FDI Flows
How does a change in tax effect incentives to work
If direct tax ↑, incentives to work ↓
If indirect tax ↓, incentives to work ↓
How does a change in tax effect Income distribution
If direct tax ↓, Income inequality ↑
If indirect tax ↑, Income inequality ↑
How does a change in tax effect Price level
If direct tax ↓, AD ↑, Price level ↑
If indirect tax ↑, £ G+S ↑, AD↓, Price level ↓
How does a change in tax effect Output and Employment
If direct tax ↓, Disposable income ↑, Consumption ↑, AD ↑, Output and Employment ↑
If indirect tax ↑, £ G+S ↑, AD ↓, Output and employment ↓
How does a change in tax effect Trade Balance
If direct tax ↓, Disposable income ↑, demand for income ↑, Trade balance ↓
If indirect tax ↑ (tariffs), Trade balance ↓
How does a change in tax effect FDI
If direct tax ↓, FDI ↑
If indirect tax ↑, £ G+S ↑, Consumption ↓, FDI ↓
