Tax Systems

Question 1

proportional tax

Answer 1

tax for which the percentage remains constant as income increases

Question 2

proportional tax: burden

Answer 2

rich will pay more tax than poor in absolute terms but burden no greater on rich than on poor

Question 3

regressive tax

Answer 3

tax that decreases in percentage as income increases

Question 4

regressive tax: burden

Answer 4

greater burden on poor

Question 5

progressive tax

Answer 5

tax for which the percentage paid in tax increases as income increases

Question 6

progressive tax: burden

Answer 6

rich have more ability to pay taxes so bear greater burden - most equitable

Question 7

graph for tax systems

Answer 7

Question 8

arguments against progressive tax

Answer 8

• taxing higher incomes at higher rates creates disincentive to work
• punishes any increase in productivity or effort among nation’s workers

Question 9

arguments for a progressive tax system

Answer 9

• higher rates only apply to marginal income rather than total income
• incentive to increase income by increasing productivity still there because increase in taxes will always be less than increase in income
• provides government with means of redistributing nation’s income

Question 10

Laffer curve and explanation

Answer 10

government’s total tax receipts are maximised between 0% and 100%

at 100% tax rate no one would work so no tax revenue

Question 11

total tax

Answer 11

Y*T

Question 12

average tax

Answer 12

T/Y

Question 13

marginal tax

Answer 13

• %tax on last £ earned unless give two years of tax:
• dT/dY

Question 14

disposable income

Answer 14

disposable income = income - taxes

Question 15

VAT tax type

Answer 15

• proportional
• regressive compared to income
• balance between progressive income tax and VAT