Taxation

Question 1

Define progressive taxes

Answer 1

A tax charged in accordance with the ability to pay

Question 2

Define regressive taxes

Answer 2

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

Question 3

What is direct tax

Answer 3

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

Question 4

Examples of direct tax

Answer 4

Income tax

Capital gains tax

Question 5

What is indirect tax

Answer 5

Taxes levied on goods and services

Question 6

Example of indirect tax

Answer 6

VAT

Customs duties

Question 7

What is tax avoidance

Answer 7

Legal methods of reducing tax

Question 8

What is tax evasion

Answer 8

Illegal methods of reducing tax

Question 9

What is the black economy

Answer 9

All economic activity that goes unrecorded in the national income figures

Question 10

Incidence of tax

Answer 10

The person who eventually pays the tax

Question 11

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

Answer 11

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

Question 12

Examples of taxes to change behaviour and make positive externalities

Answer 12

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)

Question 13

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

Answer 13

Tax rises the price buyer pays

Tax lowers the price seller receives

Question 14

Example of tax loopholes

Answer 14

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

Question 15

What are Adam Smiths 4 Canons of Taxation

Answer 15

Equality
Certainty
Convenience
Economic

Question 16

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

Answer 16

Each person should pay taxes based on their ability to pay

Eg rich pay more than poor

Question 17

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

Answer 17

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

Question 18

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

Answer 18

Paying taxes should be as easy as possible,

Question 19

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

Answer 19

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

Question 20

What is average tax rate

Answer 20

Rate of total taxes paid divided by total income

Question 21

What is marginal tax

Answer 21

The rate of extra taxes paid on top as additional income

Question 22

What is lump sum tax

Answer 22

Tax that is the same for every income

Question 23

What is the most efficient tax

Answer 23

Lump sum tax

Question 24

Why is lump sum tax the most effienxt

Answer 24

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

Question 25

Why do we not use lump sum

Answer 25

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

Question 26

What is the benefit principle

Answer 26

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

Question 27

Example of something that is justified for using benefits principle

Answer 27

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

Question 28

What is the ability to pay principle

Answer 28

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

Question 29

Vertical equity

Answer 29

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

Question 30

Horizontal equity

Answer 30

Taxpayers with similar abilities to pay should contribute the same amount

Question 31

What is proportional tax / flat tax

Answer 31

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

Question 32

What are corporate taxes

Answer 32

Taxes levied on profits that businesses make

Question 33

Why do people tend to want to increase corporate tax

Answer 33

Not a person, impersonal | However tax eventual falls on people employed in company

Question 34

A nice quote | Taxes are the prices we have to pay for ....

Answer 34

A civilised society

Question 35

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

Answer 35

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

Question 36

Why does Ireland keep its corporate tax low

Answer 36

As to not discourage investment and in time, increase Employment

Question 37

When incomes are rising should tax increase or decrease why

Answer 37

Tax should increase | Lessen infiltration on economy

Question 38

When incomes are falling should tax increase or decrease why

Answer 38

Should decrease | Lessen the pressures on the economy

Question 39

Advantages of direct taxation

Answer 39

Conforms all four canons | Automatic stabilisers

Question 40

Disadvantages of direct taxation

Answer 40

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

Question 41

Advantages of indirect taxation

Answer 41

``` 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 ```

Question 42

Disadvantages of direct taxation

Answer 42

Inflationary Not equitable People may switch to alternative goods

Question 43

2 reasons governments implement taxes``

Answer 43

to raise revenue to pay for services eg health, education. | to influence behaviour eg carbon tax (to internalise externalities)``

Question 44

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

Answer 44

tax rises the price that buyer pay | tax lowers the price that sellers receive

Question 45

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

Answer 45

downwards by the size of the tax

Question 46

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

Answer 46

upwards by the price of the tax

Question 47

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

Answer 47

size of tax x quantity sold

Question 48

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

Answer 48

the buyers

Question 49

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

Answer 49

the sellers

Question 50

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

Answer 50

wouldn't be much room for tax

Question 51

examples of standard tax in ireland

Answer 51

``` prsi usc corporation tax vat carbon tax vehicle tax property tax ```

Question 52

what is the consumer tax burden made up

Answer 52

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

Question 53

what is the producer surplus made up of

Answer 53

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

Question 54

when will there be no deadweightloss when tax is levied

Answer 54

when both supply and demand are perfectly inelastic

Question 55

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

Answer 55

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

Question 56

what is deadweight loss

Answer 56

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/