Tax Systems Flashcards Preview

IB Economics Outside Flashcards > Tax Systems > Flashcards

Flashcards in Tax Systems Deck (15)
Loading flashcards...
1

proportional tax

tax for which the percentage remains constant as income increases

2

proportional tax: burden

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

3

regressive tax

tax that decreases in percentage as income increases

4

regressive tax: burden

greater burden on poor

5

progressive tax

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

6

progressive tax: burden

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

7

graph for tax systems

8

arguments against progressive tax

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

9

arguments for a progressive tax system

  • 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

10

Laffer curve and explanation

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

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

11

total tax

Y*T

12

average tax

T/Y

13

marginal tax

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

14

disposable income

disposable income = income - taxes

15

VAT tax type

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