Podcast
Questions and Answers
What are taxes primarily used for?
What are taxes primarily used for?
- Encouraging private sector growth
- Supporting government supplied goods and services (correct)
- Reducing national debt
- Funding political campaigns
Which of the following describes a purpose of taxation in society?
Which of the following describes a purpose of taxation in society?
- To encourage tax evasion practices
- To limit government expenditure
- To increase personal income directly
- To finance welfare programs and public services (correct)
Which of the following is NOT a reason for taxation impacting economic growth?
Which of the following is NOT a reason for taxation impacting economic growth?
- Redistributing purchasing power among citizens
- Encouraging the expenditure of tax refunds (correct)
- Providing funding for public infrastructure
- Discouraging certain undesirable activities
What is wealth defined as in the context of economics?
What is wealth defined as in the context of economics?
What is true about excise taxes?
What is true about excise taxes?
What is a characteristic of horizontal equity in taxation?
What is a characteristic of horizontal equity in taxation?
Which type of tax is primarily imposed on activities that generate income?
Which type of tax is primarily imposed on activities that generate income?
Which tax is specifically withheld or paid by an employer based on employee wages?
Which tax is specifically withheld or paid by an employer based on employee wages?
Which statement about vertical equity in taxation is correct?
Which statement about vertical equity in taxation is correct?
What is the primary difference between tax evasion and tax avoidance?
What is the primary difference between tax evasion and tax avoidance?
What is the main purpose of a property tax?
What is the main purpose of a property tax?
How does taxation benefit businesses during an economic downturn?
How does taxation benefit businesses during an economic downturn?
Which of the following taxes is levied specifically on certain products, such as alcohol and gasoline?
Which of the following taxes is levied specifically on certain products, such as alcohol and gasoline?
What does the term 'foreign tax' refer to?
What does the term 'foreign tax' refer to?
How does sales tax generally affect consumer behavior?
How does sales tax generally affect consumer behavior?
What is a unique feature of value-added tax (VAT)?
What is a unique feature of value-added tax (VAT)?
What is the first step in the process of resource reallocation through taxation?
What is the first step in the process of resource reallocation through taxation?
Which of the following correctly defines a direct tax?
Which of the following correctly defines a direct tax?
What is considered a common tax base?
What is considered a common tax base?
Which statement best describes wealth as a tax base?
Which statement best describes wealth as a tax base?
How does an indirect tax primarily affect consumers?
How does an indirect tax primarily affect consumers?
Why are the three major tax bases related to each other?
Why are the three major tax bases related to each other?
In the context of taxation, what is meant by shifting of a tax?
In the context of taxation, what is meant by shifting of a tax?
What happens when taxes increase for individuals?
What happens when taxes increase for individuals?
What type of tax applies the same tax rate regardless of income level or tax base size?
What type of tax applies the same tax rate regardless of income level or tax base size?
Which statement best describes a selective tax?
Which statement best describes a selective tax?
What does the average tax rate (ATR) measure?
What does the average tax rate (ATR) measure?
Which example best illustrates a general tax?
Which example best illustrates a general tax?
What is represented by the marginal tax rate (MTR)?
What is represented by the marginal tax rate (MTR)?
Which of the following is a characteristic of a selective tax?
Which of the following is a characteristic of a selective tax?
Which of the following taxes would most likely be an example of a general tax?
Which of the following taxes would most likely be an example of a general tax?
What is horizontal equity in taxation?
What is horizontal equity in taxation?
What is a characteristic of tax evasion?
What is a characteristic of tax evasion?
Which best describes how food and medicine are treated in taxation typically?
Which best describes how food and medicine are treated in taxation typically?
How do the benefits of tax evasion typically vary?
How do the benefits of tax evasion typically vary?
What defines vertical equity in taxation?
What defines vertical equity in taxation?
What is the primary incentive for tax evasion?
What is the primary incentive for tax evasion?
Which of the following statements about tax avoidance is true?
Which of the following statements about tax avoidance is true?
What could discourage an individual from reporting their true benefits related to government activities?
What could discourage an individual from reporting their true benefits related to government activities?
What tends to happen when labor income faces high taxes?
What tends to happen when labor income faces high taxes?
What is the primary characteristic of a regressive tax system?
What is the primary characteristic of a regressive tax system?
Which tax structure results in the average tax rate increasing with the size of the tax base?
Which tax structure results in the average tax rate increasing with the size of the tax base?
What do tax brackets represent in a progressive tax system?
What do tax brackets represent in a progressive tax system?
Which principle argues that taxes should be based on the benefits received from government services?
Which principle argues that taxes should be based on the benefits received from government services?
In a regressive tax rate structure, which of the following is true?
In a regressive tax rate structure, which of the following is true?
What disadvantage does the benefit principle face?
What disadvantage does the benefit principle face?
What does the ability-to-pay principle advocate regarding tax distribution?
What does the ability-to-pay principle advocate regarding tax distribution?
Under proportional taxation, what remains unchanged regardless of the base size?
Under proportional taxation, what remains unchanged regardless of the base size?
Flashcards
Taxes definition
Taxes definition
Compulsory payments to the government, levied on individuals, property, or activities, to fund government operations.
Tax Importance (society)
Tax Importance (society)
Taxes fund essential social services like healthcare, education, and infrastructure. They also can support unemployment benefits and pensions; discourage unhealthy behaviors like tobacco use.
Tax Importance (businesses)
Tax Importance (businesses)
Government spending funded by taxes can boost the economy, offering loans, support during recessions; improving living standards potentially benefits businesses.
Tax role in resource allocation
Tax role in resource allocation
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Tax base
Tax base
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General tax
General tax
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Selective tax
Selective tax
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Tax rate structure
Tax rate structure
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Taxation resource reallocation
Taxation resource reallocation
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Direct Tax
Direct Tax
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Indirect Tax
Indirect Tax
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Tax Base - Income
Tax Base - Income
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Tax Base - Consumption
Tax Base - Consumption
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Tax Base - Wealth
Tax Base - Wealth
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Relationship of Tax Bases
Relationship of Tax Bases
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Consumption
Consumption
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Wealth
Wealth
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Income Tax
Income Tax
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Capital Tax
Capital Tax
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Sales Tax
Sales Tax
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Payroll Tax
Payroll Tax
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Federal Income Tax
Federal Income Tax
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Value-Added Tax (VAT)
Value-Added Tax (VAT)
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Average Tax Rate (ATR)
Average Tax Rate (ATR)
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Marginal Tax Rate (MTR)
Marginal Tax Rate (MTR)
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Proportional Tax
Proportional Tax
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Excise Tax
Excise Tax
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Horizontal Equity
Horizontal Equity
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Vertical Equity
Vertical Equity
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Tax Evasion
Tax Evasion
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Tax Avoidance
Tax Avoidance
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Marginal Benefits
Marginal Benefits
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Incentives for Tax Evasion
Incentives for Tax Evasion
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Tax Evasion Costs
Tax Evasion Costs
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Marginal Benefits from Government Activities
Marginal Benefits from Government Activities
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Regressive Tax
Regressive Tax
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Progressive Tax
Progressive Tax
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Tax Bracket
Tax Bracket
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Ability-to-Pay Principle
Ability-to-Pay Principle
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Benefit Principle
Benefit Principle
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Study Notes
Public Finance - Chapter Eight: Taxation
- Taxation is a pecuniary burden imposed on individuals or properties to support government, a payment by a legislative body.
- Taxes are compulsory payments linked to activities, used to purchase goods/services or redistribute purchasing power.
- Taxation benefits society by funding public projects such as healthcare, education, and transportation, as well as providing unemployment benefits and pensions.
- Taxation influences economic growth, discouraging undesirable activities like tobacco and gambling, affecting sales and prices of goods.
- Taxes help businesses through funding for long-term loans and in economic recessions/turmoils, improving the country's welfare and the business's prospects.
- Taxation reallocates resources from private to public use: reducing private spending by collecting taxes and then using those funds to provide public goods/services as well as income support.
- Direct taxes are directly levied on taxpayers - often cannot be passed on to others. Examples include income tax, and corporate income taxes.
- Indirect taxes are those that can be passed on – often impacting prices, levied by intermediaries. Examples include sales taxes, and excise taxes.
- Tax bases are economic activities upon which taxes can be levied. The most common bases include income, consumption, and wealth.
- Income is the sum of annual consumption and savings.
- Consumption is annual income, less the amount saved.
- Wealth is accumulated savings and investments at a specific point in time.
- Important sources of taxes include income, capital, sales/excise, payroll, unemployment, and foreign taxes.
- Capital taxes cover items generating profit such as factories/machinery/real estate.
- Sales/excise taxes are levied on purchases of goods/services and on particular goods.
- Payroll tax is withheld on employee wages.
- Unemployment tax funds unemployment assistance for laid-off workers.
- Foreign income taxes are imposed on income earned in other countries.
- Value-Added Tax is a national sales tax during production phases.
General and Selective Taxes
- General taxes cover all components of the economic base, excluding exemptions/deductions.
- Selective taxes target specific components of the tax base, allowing exemptions/deductions.
Tax Rates
- A tax rate refers to the percentage of taxable income or a corporation's earnings owed to the government.
- Tax rates can be calculated as a percentage of the tax base.
Tax Rate Structures
- Average Tax Rate (ATR): the total dollar amount of taxes collected, divided by the value of the tax base
- Marginal Tax Rate (MTR): the additional tax collected on additional dollar value of the tax base.
Proportional Taxes
- Apply the same tax rate regardless of income or tax base size.
- Average tax rate remains the same irrespective of income level.
Regressive Taxes
- Taxes decline in relation to income.
- Average tax rate declines as the tax base increases.
Progressive Taxes
- Higher income earners pay higher taxes rates.
- Average tax rate increases with the size of the tax base.
- Tax brackets define increments of annual income associated with specific marginal tax rates.
Burden of Government Finance Distribution
- Benefit principle: Government funds are linked to the services obtained. Payments depend on the benefits received by the consumer.
- Ability-to-pay principle: Taxes are based on the capacity to pay; higher earners pay more.
Horizontal and Vertical Equity
- Horizontal equity: Individuals with similar economic capacity pay the same amount of tax.
- Vertical equity: Taxpayers with differing economic capacity pay different amounts of tax based on chosen principles of fairness.
Tax Evasion and Tax Avoidance
- Tax evasion: Non-compliance with tax laws - illegal.
- Tax avoidance: Changing behaviour to avoid paying tax - legal.
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Description
Explore the concepts of taxation as outlined in Chapter Eight of Public Finance. This chapter delves into the purpose, implications, and effects of taxes on individuals and society. Learn how taxation supports government operations, influences economic behavior, and funds essential public services.
