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34 Cards in this Set
- Front
- Back
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Why do we pay taxes 1)
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Raise Revenue to finance spending on goods and services
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Why do we pay taxes 2)
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So gov't can control AD
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Why do we pay taxes 3)
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Redistribute Income
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Why do we pay taxes 4)
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Correcting Externalitites
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Why do we pay taxes 5)
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Control Balance of Payments and Imports
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What is the effect of Indirect Taxes
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Regressive Taxes and proportion of income paid decreases as income rises
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What is the effect of Direct Taxes
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Progressive Taxes and proportion of income paid increases as income rises
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What is the effect of Proportional Taxes
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Proportion of Income stays constant as income changes
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What are Direct Taxes
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Direct Taxes are typically on income divided for certain expense like (Insurance, Corporate Tax, Peteroleum Tax, Inheritance Tax, Capital Gains Tax)
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What is Fiscal Drag
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Earnings rise faster than prices
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What are Excise Duties
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Specific taxes levied on a certain good or service. Measurable in units per good
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What is Value Added Tax
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Tax as a proportion of Price - Raises Prices and Reduces Demand
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Whats the advantage of Indirect Taxes to Direct Taxes
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Income and Corporate Taxes get lowered. Incentive to work is increased, increasing productivity and AS, pushing prices down. More Flexible and can be used by Gov't to meet policy objectives
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What is the Substitution Effect
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Income Taxes are cut, and working more earns more. Opportunity Cost of leisure time is higher
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What is the Income Effect
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Income Taxes are cut, and people can work fewer hours to get the same amount of income
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Which types of taxes increase Saving
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Indirect Taxes reduce consumption and in effect increase saving
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How are Indirect Taxes used for the environment
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Indirect Taxes correct for Market Failure and/or externalities
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What are Externalities
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Occur when Social Costs of Production exceed Private Costs of Production
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What is easier to Administer from Gov't standpoint Direct or Indirect Taxes
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Indirect Taxes because collection only comes from Businesses
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Reasons for Gov't Spending 1)
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Providing Public and Merit Goods
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Reasons for Gov't Spending 2)
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Redistributing Wealth and Income
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Reasons for Gov't Spending 3)
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Regulating Economic Activities
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Reasons for Gov't Spending 4)
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Influence Resource Allocation and Industrial Efficiencies
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Reasons for Gov't Spending 5)
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Influencing Macro Level Activities
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What does the Private Finance Initiative do?
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Long-Term Leases and/or Financing Projects for Public Goods.
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What is PSNCR or PBNR
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Public Sector Net Cash Requirement (Public Sector Borrowing Requirement) - Combined Financial deficit of Central Gov't, Local Govt, and Public Capital
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Three Ways to Measure PSNCR: 1)
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Nominal PSNCR - Money Terms, not adjusted for economic variables
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Three Ways to Measure PSNCR: 2)
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PSNCR as % of GDP - Measures Debt Problem Well
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Three Ways to Measure PSNCR: 3)
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Cyclically Adjusted PSNCR - Allows for adjustments of Economic Variables
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How is National Debt Different than PSNCR
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This is the Unpaid Portion of Borrowing or the Sum of all Central Gov't Debt
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What are the Risks of a High Level of Borrowing 1)
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Interest Rates could rise and crowd out Private Investment
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What are the Risks of a High Level of Borrowing 2)
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Increase of Tax Burden
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What are the Risks of a High Level of Borrowing 3)
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Interest Payments are higher
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Reasons for Govt Spending
P R R E M |
1)Providing Public / Merit Goods
2) Redistribution of income and Wealth 3) Regulation 4) Influencing Economic Efficiency 5) Influencing Macro Activity |
