Taxation

Ideally taxes should be based on taxpayers ability to pay. In other words taxes should be:

• Lead to equality

• Reduce Inequality

• Equitable (fair)

• Rational

If the taxes are economical, they should:

• respect principles of economics

• lower the tax burden on low income earners

• be easy and cheap to collect.

• redistribute money to people on low incomes.

The tax system should attempt to achieve its aims without any undesirable side effects. Eg. It should not lead to disincentives to work. This principle of taxation is called:

• Equity

• Economical

• Productivity

• Efficiency

When taxes can adapt to changes in the economic environment, we call this principle of taxation:

• Responsiveness

• Adaptability

• Flexibility

• Wishful Thinking

What impact will a sales tax have on the supply curve?

• It will result in a movement down the supply curve

• It will result in a movement up the supply curve

• It will result in a shift of the supply curve to the right.

• It will result in a shift of the supply curve to the left

If a product is relatively elastic, an increase in sales tax will:

• Increase revenue for the government but decrease revenue for the seller

• Decrease revenue for the government.

• result in inelastic supply

• lead to increased demand for compliments and substitutes.

A tax cut may:

• Increase economic growth in the short term

• Increase incentives to work

• Reduce government revenue

• All of the previous/other answers are correct.

The government has adopted a contractionary fiscal policy focused on taxation. This policy will:

• Lead to an appreciation of the currency

• Reduce any inflationary pressures in the economy.

• Increase economic growth in the long term

• Lead to an increase in interest rates.

Countries with low taxation may:

• encourage MNCs to locate in their countries

• encourage Individuals to work/live in that country

• increase capital (financial inflows) to their countries.

• All of the previous answers/options are correct.

Why might a country tax cars based on their engine size?

• They want to encourage the purchase of solar powered vehicles

• Larger vehicles may generate more pollution and use more gas.

• They want to encourage greater public transport use

• They want to discourage red necks & hoons who usually buy large cars.