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Learning outcome of chapter 10: List alternative sources of government revenue; define a tax and describe the structure of tax rates; distinguish between general and selective taxes, specific and ad valorem taxes, as well as direct and indirect taxes; list the properties of a good tax; explain what is meant by an equitable tax;...
• • • • • • • List alternative sources of government revenue Define a tax and describe the structure of tax rates Distinguish between general and selective taxes, specific and ad valorem taxes, as well as direct and indirect taxes List the properties of a good tax Explain what is meant by an equitable tax Distinguish between the statutory and economic burden of a tax Analyse the shifting of a tax and its impact on tax incidence using both a partial and a general equilibrium framework • • Tax User charges – Prices charged for the delivery of certain public goods and services – Examples: Toll roads, public swimming pools • Administrative fees – Definition of service/benefit is broad & imprecise – Examples: TV licences, parking tickets • • Borrowing ‘Inflation taxation’ Type of Tax % Contribution of total tax revenue for 2010/11 Income and profits 59.1% Payroll and workforce 1.3% Property 1.4% Goods and services 37.8% International trade and transactions 4.1% Stamp duties and fees 0.001% Tax bases • Income • Wealth • Consumption Tax rate • Proportional • Progressive • Regressive • • • • Broad-based Taxes the entire tax base No exemptions Example: Value Added Tax • Narrow based • Imposed on one/few products or only income • Whole tax base is not taxed • Example: cigarettes • Specific/unit tax – Levied per unit – Example: Excise duties on sparkling wine • Ad valorem – Levied as a rate – Typically imposed on ‘luxuries’ such as golf balls • Direct – Examples: personal income and company tax • Indirect – Examples: excise and VAT • • • • • Generate sufficient revenue to finance budgeted government expenditure Equitable Economically efficient Administratively efficient Flexible • • Tax equity principle Ability-to-pay principle – Horizontal equity – Vertical equity • Benefit principle – Forced carrying – Earmarked taxes • • • • • • Statutory Economic Balanced-budget Differential tax Partial equilibrium framework General equilibrium framework Incidence of a unit tax on consumption imposed on the supply side or the demand side ... • • Tax equity principle Ability -to- pay principle – Horizontal equity – Vertical equity • Benefit principle – Forced carrying – Earmarked taxes • • • • • • Statutory Economic Balanced-budget... ‘Inflation taxation Type of Tax % Contribution of total tax revenue for 2010/11 Income and profits 59.1% Payroll and workforce 1.3% Property 1.4% Goods and services 37.8% International trade and transactions... government revenue Define a tax and describe the structure of tax rates Distinguish between general and selective taxes, specific and ad valorem taxes, as well as direct and indirect taxes List the properties