4.5 - Impacts of Tax Changes

Question 1

How do tax changes supposedly affect labour incentives?

Answer 1

Higher MRT is labour disincentive
Lower taxes => Longer hours + contributions
Free Market view

Question 2

Oppose the view that higher taxes are a labour disincentive

Answer 2

Higher MRT will increase labour participation as individuals wish to maintain their income

Question 3

How can tax changes affect income distribution?

Answer 3

Progressive system targets equality
Direct taxes promote equality
Indirect tax less equal

Question 4

What is the general impact of tax on AD + AS?

Answer 4

Direct tax - Stifles AD
Indirect tax - Stifles AS

Question 5

How can indirect tax affect the price level?

Answer 5

Cause of cost push inflation
Production costs rise

Question 6

How can direct tax affect the price level?

Answer 6

Affects AD
Cause of demand pull

Question 7

How can taxation affect the balance of trade?

Answer 7

Import tariffs
Imports expensive
Improved balance

Question 8

How can taxes be used to attract FDI?

Answer 8

Business friendly rates
Consistent + predictable
Tax competition

Question 9

What is Tax Competition?

Answer 9

Reduction in fiscal burdens to attract investors + competition
Generally business friendly tax