The role of government & taxation

Question 1

What are the things that Galbraight
argued should be provided by the state?

Answer 1

• low-cost housing
• health care
• parks
• recreational facilities
• police
• libraries, etc.

Question 2

What is welfare state?

Answer 2

Welfare state is a political system based on the premise that the government has the responsibility for the well-being of its citizens, by ensuring a minimum standrd of living for everyone.

Question 3

Advantages of welfare-state

Answer 3

• Minimum standard of living provided for everyone (including the underclass)
• Social protection
• Support of scientific research that doesn’t promise short-run profit
• Protection of the environment

Question 4

Disadvantages of welfare-state

Answer 4

• High taxes
• No “freedom to choose how to use our income”
• No “freedom to use the resources we possess in accordance with our own values”
• Government intrusion in personal life, decision-making

Question 5

What does Friedman think of government role in economy?

Answer 5

He claims that government should eliminate restrictions on economic freedoms.
Two essential parts of economic freedom are:
- freedom to use our resources in the way we can benefit from them the most
- freedom to choose how to use our income

He admits some restrictions are necessary but in his view we have gone too far, and also believes anything that reduces freedom in one part of our lives affects freedom in other parts.

Question 6

Taxation…

Answer 6

…are means by which government finance their expenditure by imposing charges on citizens and corporate entities

Question 7

Government can..

Answer 7

• levy a tax
• impose a tax
• collect a tax
• raise revenue through taxation

Question 8

People or companies can..

Answer 8

• be liable to pay a tax
• evade a tax
• file a tax return
• avoid a tax
• pay a tax on their income

Question 9

Tax evasion is…

Answer 9

…an illegal practice where a person or entity intentionally does not pay due taxes. (not reporting income, not paying taxes owed)

Question 10

Tax avoidance is…

Answer 10

…legal methods used bya taxpayer to minimize the amount of income tax owed. (taking tax credits, setting up tax deferral plans)

Question 11

default

Answer 11

to be unable to pay a loan

Question 12

enforce the law

Answer 12

ensuring obedience to the law

Question 12

austerity plan

Answer 12

a government´s efforts to reduce public spending to try to shrink budget deficits

Question 12

bailout

Answer 12

the act of offering financial assistance to failing business or economy to prevent itfrom going bankrupt

Question 13

shadow economy

Answer 13

business that is legal but off the books

Question 14

tax revenue

Answer 14

the income that is gained by government through taxation

Question 15

tax system

Answer 15

a legal system for assessing and collecting taxes in a country

Question 16

tax compliance

Answer 16

how much taxpayers obey the tax laws of a country

Question 17

tax exemption

Answer 17

freedom from a certain tax usually given by governements to encourage some types of activities or businesses

Question 18

Classification of
taxes

Answer 18

• Depending on the tax rate:
  Progressive tax, regressive tax and proportional (or flat) tax
• Depending on who pays the tax:
  Direct tax and indirect tax

Question 19

Progressive tax

Answer 19

A tax levied at a higher rate on higher income. (income tax)

Question 20

Regressive tax

Answer 20

A tax that takes a larger percentage of income from low-income people than from high-income people. It is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. (VAT-value added tax)

Question 21

Proportional (flat) tax

Answer 21

A system that taxes everyone at the same rate, regardless of their income bracket. (income tax). Supporters of this type of tax argue that it gives people an incentive to earn more, because they are not penalized by moving up to a higher tax bracket (as they would in a progressive rate system).

Question 22

Direct tax

Answer 22

A tax placed directly on an individual or business. (Income tax, capital gains tax, inheritance tax, wealth tax, national insurance)

Question 23

Indirect tax

Answer 23

Taxes are levied on the production or consumption of goods and services or on transactions, including inports and exports. (VAT, sales tax, customs duty)

Question 24

The main purpose of taxation…

Answer 24

…is to raise revenue for government spending.

Question 25

A tax haven…

Answer 25

…is a country or place which has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries.

Question 26

Tax morale…

Answer 26

…refers to the willingnes of individuals and businesses to volontarily comply with tax obligations.