Fiscal policy regarding taxation (Macro) Flashcards
Cards on what is involved in fiscal policy, positives, negatives, stakeholders. (17 cards)
What is fiscal policy?
Changing either taxation or government expenditure as a means to attain a government objective.
How much does the government spend a year?
around £800B
What finances a budget deficit?
Government borrowing through issuing of bonds
What are the two types of taxation and the differences?
Direct or indirect, Direct being those that can’t be passed on to another person (levied by incomes) and Indirect being a tax on spending, (seller can pass on tax to buyer)
Difference between progressive, regressive and proportional taxes?
Taxes on incomes…
-Proportion of income increases as income does.
-Proportion increases as income decreases (everyone pays the same).
-Everyone pays same percentage
What are the types of direct taxes?
-Income
-National instance (NIC)
-Corporation
-Capital gains (tax on sale of assets)
-Inheritance tax
What are types of indirect tax?
-Stamp duty
-Council tax
-VAT
-Excise duties (alchohol)
Benefits of income tax vs drawbacks?
-Generally seen as fair if progressive, can alleviate poverty
BUT
-Acts as disincentive to work
-Complex for workers if fiscal drag occurs
Benefits of VAT vs drawbacks?
-Doesn’t affect incentives, hard to evade
BUT
-Regressive and inflationary
Benefits of Excise duties vs drawbacks?
-Change expenditure patterns and discourage spending on demerit goods.
BUT
-Regressive, unemployment in industries, and black markets due to addiction
Benefits of Corporation tax vs drawbacks?
-Hits successful firms worse (positive or negative?)
BUT
-Deter FDI
-Encourages tax avoidance
-Discourage investment
Reasons for levying taxation?
-Raise revenue to finance expenditures
-Change patterns of spending
-Redistributing income
What is a hypothecated tax?
Tax levied to raise money for specific cause, such as the labours windfall tax on privatised companies to fun employment programmes.
What are the canons of taxation proposed by Adam Smith?
-Economical
-Equitable
-Efficient
-Convenient
-Certain
-Flexible
What is horizontal equity?
People on similar incomes paying similar tax
What is vertical equity?
Where taxes are levied based on ability to pay
Example of a hypothecated tax?
Highway (vehicle excise duty), or M1 in 1959, money goes toward infrastructure (allegedly).
