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Chapter 4.3.3-4.3.4 (Taxation) - Coggle Diagram
Chapter 4.3.3-4.3.4 (Taxation)
Reason for taxation
Taxes raise revenue to fund public expenditures.
Manage the macroeconomy
Reduce rate of price inflation
Reduce the rate at which total demand is growing
Reduce inequalities in income
Discourage spending on imported goods
Discourage the consumption and production of harmful product
Protect the environment
Principles of taxation
Tax burden: Measurement of the proportion of tax taken from the national income of an economy in that national economy. Individuals and firms' tax burden is measured by the amount of tax they pay as a proportion of their income
Tax evasion and avoidance
Taxes are compulsory payments backed by the law. Tax evasion is a punishable offence
Some tax can be avoided legally. People do not have to pay for cigarettes tax if they don't smoke. Similarly, multinational company and people with high income can move their wealth to countries with lower tax rates
Principle of a good tax
Certainty- tax should be relatively stable and people should know how much and when to pay
Convenience - Simple and easy to pay the tax
Non-Distortionary- tax should not distort sensible economic behavior
Simplicity - Tax need to be easy to understand
Equity-taxing according to ability
Administrative efficiency- Cheap and easy to collect