Types of taxes and laffer curve, Macroeconomics

Types of Taxes Which a Government can impose on the citizens are as follows:

With the theory of taxation covered, we can now move towards the actual menu of the taxes the government can enforce to increase the revenue for itself.

i. Direct taxes, such as income tax, which is imposed on the factor incomes. Income tax for the individuals is known personal income tax, while for  firms is  known corporate income tax.

ii. Indirect taxes, such as sales tax or the value added taxes, which is imposed on expenditure on goods/commodities and services

iii. Tariffs which and are imposed on the import expenditure

iv. Wealth or property taxes which are imposed on the particular fixed assets.

For the LICs, income tax collection is very much low and the indirect taxes frequently account for more than 2/3rd of the entire revenue as the citizens frequently under-report their incomes in these countries, there is not any voluntary tax payment culture, and income tax collection agencies are weak and corrupt. By contrast, for HICs, income taxes are very much important, accounting for the over 2/3rd of entire tax revenue.

Disposable income is obtained by subtracting the income tax from whole income. At national level, disposable income Yd is computed as Y-T, or Y-tY, where t is net income tax rate. One important question in front of the governments is of determining the optimal tax rate, t, for an average citizen. If t is too low, not enough taxes can be collected to enable the government to run and provide the proper services. If t becomes very high, the incentive for citizens to work will be decreased, meaning national income will go below and tax collection will certainly fall. Also at quite high levels of t, the incentive to cheat and evade taxes rises and the government, thus, might face serious enforcement problems.

The Laffer curve:

The relationship amongst the tax rate and tax revenue collection might be summarized in the Laffer curve diagram drawn. In tax revenue-tax rate space, the Laffer curve plots as an “inverted U”, which is delivering an optimal tax rate t* which is less than the 100%.

Posted Date: 7/19/2012 3:21:11 AM | Location : United States







Related Discussions:- Types of taxes and laffer curve, Assignment Help, Ask Question on Types of taxes and laffer curve, Get Answer, Expert's Help, Types of taxes and laffer curve Discussions

Write discussion on Types of taxes and laffer curve
Your posts are moderated
Related Questions
What is the difference between economic growth and economic development? Growth is only individual dimension of development. Economic development is a complicated multi-dimensio

Determine Why banks raise their interest rates A way to explain why banks raise their interest rates is as follows. With higher overnight interest rates, it is more expensive fo

Based on the recent success of Ontario tennis star Milos Raonic, Nike Canadawill produce new state of the art tennis racket with a red maple leaf on the strings. Mike expects to se

If 5000 units are sold and income increases by 20% with an income elastiticy of +2, what will the number of sales units be after the increase


Export Promotion Measures: While a number of  existing  export promotion schemes  such as  incentive related to Duty Free Replenishment Certificate (DFRC), Duty Entitlement Pa

A public good: A) Generally results in substantial negative externalities. B) Can never be provided by a nongovernmental organization. C) Costs essentially nothing to prod

The following Cobb-Douglas production function is used to describe the output generated by a local government maintenance agency. Q = αL β1 K β2 E β3 Where L represents numb

The hypotheses are: The null hypothesis,  infers that a unit root exists, whereas the alternative hypothesis,  concludes that there is no root. Decision rule:

How is economics works with interaction of individual choices? Principles behind the interaction of individual choices: 1. There are gains through trade. • Specialization