Taxation

Question 1

What is progressive tax?

Answer 1

When those on higher income levels pay a higher % of their income in tax

Question 2

What is regressive tax?

Answer 2

An increase in income leads to a smaller % of their income going on the tax e.g VAT

Question 3

What is proportional tax?

Answer 3

Takes the same % of income whatever band

Question 4

What is direct tax?

Answer 4

Takes from the people’s earnings e.g income tax

Question 5

What is indirect tax?

Answer 5

Paid by firms selling good– VAT

Question 6

What are the impacts of increasing rate of income tax? (7)

Answer 6

1. Higher revenues–
2. Tax evasion
3. Incentives to work
4. Redistribution
5. Aggregate demand
6. Trade balance
7. Discourage FDI

Question 7

Evaluation of higher income taxes (2)

Answer 7

1. Disincentives- a higher income tax causes people not to work—- ladder curve!!!
2. Depends how tax revenue is used- infrastructure can help in long run, welfare no help