Types of taxes and laffer curve, Macroeconomics

Assignment Help:

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%.


Related Discussions:- Types of taxes and laffer curve

Aggregate demand policies, Aggregate Demand Policies Both fiscal and m...

Aggregate Demand Policies Both fiscal and monetary policy changes shift the AD curve. Let us see how, starting with a fiscal expansion. See figure 6.2. In the upper panel, the

Why does an indifference curve never meet, No indifference curve can inters...

No indifference curve can intersect due to all points on indifference curve are ranked equally preferred and ranked or less more preferred than each other point on the curve.

Explain the price elasticity of demand, List the 3 factors that determine t...

List the 3 factors that determine the price elasticity of demand? State the factor that determines the price elasticity of supply?

Aggregate demand and aggregate supply, Find one or more articles in the wal...

Find one or more articles in the wall street Journal or other business publications that describe changes in fiscal or monetary policies in the United States. Discuss how these pol

Determine optimum output and price levels, Given the demand and cost data y...

Given the demand and cost data you will have available (see information below), briefly describe the process you would use to determine optimum output and price levels in the devel

Output-maximizing model, For a single nonprofit provider, describe an outpu...

For a single nonprofit provider, describe an output-maximizing model to predict supplier behavior.

Alternatives type of production, Production Alternatives Type of production...

Production Alternatives Type of production A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 If the economy is at point C, what is the (opportunity) cost of 2 more automobile

State the private sector in the circular flow, State the Private sector in ...

State the Private sector in the circular flow Private sector total income is known as the national income. As private sector receives entire return from the factors of prod

Classical model, using a graph of the classical labour market,illustrate th...

using a graph of the classical labour market,illustrate the effects of a real wage existing in the market that is lower than the equilibrium real wage.what will eventually happen i

Real GDP using chained-dollar method, 2012 Mangoes 91 boxes $7 a box ...

2012 Mangoes 91 boxes $7 a box Pinapples 56 boxes $12 a box 2013 Mangoes 108 boxes $14 a box Pinapples 70 boxes $8 a box Real GDP in 2013 using the chained-dol

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd