CHAPTER 6: Funding the Public Sector
Tax Rates and Revenues
Taxation (to Producers & Consumers)
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Sales Tax: Taxes assessed on the prices paid on a large set of goods and services.
Static tax analysis: Based on the assumption that changes in the tax rate leave the tax base unaffected
Dynamic Tax Analysis: Recognizes that higher tax rates may shrink the tax base.
Excise Tax: A tax levied on purchases of a particular good or service.
Unit tax: A constant tax assessed on each unit of a good that consumers purchase.
Systems of Taxation
Three Sources of Government Funding
Fees for government services (user charges)
Taxes
Borrowing
Government budget constraint: The limit on government spending and transfer payments, every dollar spent is paid for by taxes
Marginal Tax Rate = Change in tax payment / change in income
Tax Bracket: Specified interval of income to which a specific and unique tax is placed.
Average Tax Rate = Total Tax Payment / Total Income
Proportional Taxation: Taxpayers pay the same percentage of their income in taxes.
Regressive Taxation: Taxpayers pay less as their income increases.
The Most Important Federal Taxes
Capital gain: The positive difference between the purchase price and the sale price of an asset.
Capital loss: The negative difference between the purchase price and the sale price of an asset.
Retained earnings: Earnings that a corporation saves for investments, and that are not distributed to stockholders.
Tax incidence: The distribution of tax burdens among various groups in society.Consumers, stockholders, employees