Mills Econ 50 Ch 16

Front 1

What are the three primary tools of government policy?

Back 1

Taxes, expenditures and regulation

Front 2

What do taxes do?

Back 2

They reduce private income, reducing private expenditures and providing resources for public expenditures.

Front 3

What do government expenditures do?

Back 3

They fund things like public schools and roads, and pay for transfer payments like social security.

Front 4

What do government regulations do?

Back 4

They restrain or direct people to participate in certain economic activities.

Front 5

What is the purpose of government in the economy?

Back 5

Improving economic efficiency, reducing economic inequality, stabilizing the economy through macroeconomic policies, conducting international economic policy.

Front 6

When might the government choose to intervene?

Back 6

When perfect competition breaks down, when externalities are produced, when too little information is given to consumers (imperfect information)

Front 7

What are some aspects of conducting international economic policy?

Back 7

Reducing trade barriers, conducting assistance programs, coordinating macroeconomic policies, and protecting the global environment (323)

Front 8

What is public choice theory?

Back 8

The branch of economics that studies the way governments make decisions.

Front 9

When fiscal federalism is efficient, what happens?

Back 9

"An efficient system of fiscal federalism takes into account the way the benefits of public programs spill over political boundaries. The most efficient arrangement is to locate the tax and spending decision so that the beneficiaries of the programs pay the taxes and can weigh the trade-offs." (325)

Front 10

What are the two biggest expenses in federal expenditures?

Back 10

Defense and entitlement programs?

Front 11

What does taxation do?

Back 11

Taxes are the mechanism the government uses to redistribute real resources from private consumption to public consumption.

Front 12

What is the benefit principle of taxation?

Back 12

Individuals should be taxed in proportion to the benefit they receive from the government programs.

Front 13

What is the ability to pay principle?

Back 13

The amount of taxes that people pay should relate to their income or wealth. The higher the wealth or income, the higher the taxes. These systems are redistributive.

Front 14

What is horizontal equity?

Back 14

Those people that are essentially equal should be taxed equally.

Front 15

What is vertical equity?

Back 15

People in unequal circumstances should be treated unequally and fairly, but there is no consensus on exactly how vertical equity should be applied.

Front 16

What is progressive income tax?

Back 16

Higher income levels are taxed at a higher rate.

Front 17

What is a proportional income tax

Back 17

All taxpayers pay exactly the same proportion of income.

Front 18

What is a regressive income tax?

Back 18

Higher income levels are taxed at a lower rate.

Front 19

What is a direct taxes?

Back 19

Taxes that are paid directly by individuals or firms.

Front 20

What are indirect taxes?

Back 20

Taxes that are paid on goods or services, and thus are paid indirectly by consumers or producers.

Front 21

What is the average tax rate?

Back 21

Also called the effective tax rate, it is total taxes divided by total income.

Front 22

What is the marginal tax rate?

Back 22

The extra tax paid per dollar of extra income.

Front 23

What is corporate tax?

Back 23

The tax on the profits of corporations.

Front 24

What is a consumption tax?

Back 24

Taxes on specific commodities like alcohol or cigarettes, also called federal excise tax. (333)

Front 25

What is property tax?

Back 25

Each locality sets a tax rate which is taken against the assessed value of the property (land, real estate).

Front 26

What is tax incidence?

Back 26

Tax incidence is the actual amount of the tax burden paid by a particular group. It effects prices, quantities, and the composition of production and consumption. (336)