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Economics > Taxation > Flashcards

Taxation Flashcards

1
Q

Define progressive taxes

A

A tax charged in accordance with the ability to pay

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2
Q

Define regressive taxes

A

Taxes which take a greater proportion of poorer people’s income, The burden increases as the person’s ability to pay decreases

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3
Q

What is direct tax

A

A tax that the government collects directly from the tax payer.

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4
Q

Examples of direct tax

A

Income tax

Capital gains tax

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5
Q

What is indirect tax

A

Taxes levied on goods and services

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6
Q

Example of indirect tax

A

VAT

Customs duties

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7
Q

What is tax avoidance

A

Legal methods of reducing tax

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8
Q

What is tax evasion

A

Illegal methods of reducing tax

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9
Q

What is the black economy

A

All economic activity that goes unrecorded in the national income figures

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10
Q

Incidence of tax

A

The person who eventually pays the tax

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11
Q

What does it mean that the tax system should be both efficient and equitable

A

It should impose as small a cost on society as possible.
The burden of taxes should be fairly distributed
It should pay for itself

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12
Q

Examples of taxes to change behaviour and make positive externalities

A

Tax on tobacco and alcohol consumption

Tax on certain energy production to try to encourage a move towards green energy (or even no tax on greener energy)

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13
Q

How are both buyers and sellers worse off when taxes are implemented

A

Tax rises the price buyer pays

Tax lowers the price seller receives

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14
Q

Example of tax loopholes

A

In UK, tax breaks up to a certain limit when money is spent on pension fund

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15
Q

What are Adam Smiths 4 Canons of Taxation

A

Equality
Certainty
Convenience
Economic

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16
Q

What does equality mean in Adam Smith’s 4 canons of taxation

A

Each person should pay taxes based on their ability to pay

Eg rich pay more than poor

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17
Q

What does certainty mean in Adam Smith’s 4 canons of taxation

A

Tax payers know what taxes they are liable for and able to plan ahead on this basis

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18
Q

What does convenience mean in Adam Smith’s 4 canons of taxation

A

Paying taxes should be as easy as possible,

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19
Q

What does economic mean in Adam Smith’s 4 canons of taxation

A

The cost of collecting and administration of taxes is less than the amount collected

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20
Q

What is average tax rate

A

Rate of total taxes paid divided by total income

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21
Q

What is marginal tax

A

The rate of extra taxes paid on top as additional income

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22
Q

What is lump sum tax

A

Tax that is the same for every income

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23
Q

What is the most efficient tax

A

Lump sum tax

24
Q

Why is lump sum tax the most effienxt

A

Amount owed is not altered by a person’s decisions
The tax does not distort incentives
The tax does not cause deadweight loss
Minimal administrative burden on tax payers

25
Q

Why do we not use lump sum

A

Rich and poor would be taxed the same which doesn’t correspond with Adam smiths first canon “equality”

26
Q

What is the benefit principle

A

The idea that people should pay taxes based on the benefit they receive from government services

27
Q

Example of something that is justified for using benefits principle

A

Petrol, people who use petrol also use roads so tax on petrol should be used to improve the roads
Fair
Toll bridges

28
Q

What is the ability to pay principle

A

Tax should be levied on the people according to how well they can take the burden

29
Q

Vertical equity

A

The taxpayers with a greater ability to pay taxes should contribute a larger amount

30
Q

Horizontal equity

A

Taxpayers with similar abilities to pay should contribute the same amount

31
Q

What is proportional tax / flat tax

A

High income and low income earners pay the same fraction of income

32
Q

What are corporate taxes

A

Taxes levied on profits that businesses make

33
Q

Why do people tend to want to increase corporate tax

A

Not a person, impersonal

However tax eventual falls on people employed in company

34
Q

A nice quote

Taxes are the prices we have to pay for ….

A

A civilised society

35
Q

What is a problem with tax at the moment regarding jobs in Ireland

A

Social welfare is so generous that there is an incentive not to work

36
Q

Why does Ireland keep its corporate tax low

A

As to not discourage investment and in time, increase Employment

37
Q

When incomes are rising should tax increase or decrease why

A

Tax should increase

Lessen infiltration on economy

38
Q

When incomes are falling should tax increase or decrease why

A

Should decrease

Lessen the pressures on the economy

39
Q

Advantages of direct taxation

A

Conforms all four canons

Automatic stabilisers

40
Q

Disadvantages of direct taxation

A

High rates discourage workers from increasing their hours
High rates encourage tax avoidance and evasion
High rates encourage black economy
High rates discourage investment
High rates penalise efficient companies

41
Q

Advantages of indirect taxation

A 
Cost of collection is low
Harder to evade tax
Doesn’t discourage work
Can be used to change behaviour eg cigarettes 
Act as automatic stabiliser 
O
42
Q

Disadvantages of direct taxation

A

Inflationary
Not equitable
People may switch to alternative goods

43
Q

2 reasons governments implement taxes``

A

to raise revenue to pay for services eg health, education.

to influence behaviour eg carbon tax (to internalise externalities)``

44
Q

why are both buyers and sellers worse off when a good is taxed

A

tax rises the price that buyer pay

tax lowers the price that sellers receive

45
Q

when tax is levied on buyers the demand curve shifts ….

A

downwards by the size of the tax

46
Q

when tax is levied on sellers, the supply curve shifts …

A

upwards by the price of the tax

47
Q

how to calculate tax revenue ie what the gov receives from taxing

A

size of tax x quantity sold

48
Q

with elastic supply and inelastic demand, who does more of the tax burden fall on

A

the buyers

49
Q

with inelastic supply and elastic demand, who does most of the tax burden fall on

A

the sellers

50
Q

if both supply and demand were both elastic who would most of the tax fall on

A

wouldn’t be much room for tax

51
Q

examples of standard tax in ireland

A 
prsi
usc
corporation tax
vat
carbon tax
vehicle tax
property tax
52
Q

what is the consumer tax burden made up

A

the amount of the tax revenue that previously belonged to the consumer surplus

53
Q

what is the producer surplus made up of

A

the amount of the tax revenue that previously belonged to the producer surplus

54
Q

when will there be no deadweightloss when tax is levied

A

when both supply and demand are perfectly inelastic

55
Q

if the quantity sold reduces, will deadweight loss be bigger or smaller

A

larger as the more the quantity sold is altered from equilibrium, the more the deadwweight loss

56
Q

what is deadweight loss

A

the surplus that is lost that once was consumer and producer surplus of those consumers and producers who no longer are partcipating in the market.

This is because the new price is now above some consumers’ willingness to pay. The new profit is lower for for many sellers so they opt out of the market/

Economics (25 decks)

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