There are different ways for the government to raise tax revenue. While tax is often unpopular, economists set criteria for what makes a ‘good’ and ‘fair’ tax. This includes – fairness, easy to collect, non-distortionary and increases social welfare. Principles of a good tax include Vertical equity – Fair. Vertical equity is concerned with setting …
A ‘fat tax’ is a specific tax placed on foods which are considered to be unhealthy and contribute towards obesity. The tax could be placed on foods high in sugar/fat, such as crisps, chocolate and deep fried takeaways. The argument is that a fat tax would encourage healthier eating and raise revenue to be spent …
An indirect tax is charged on producers of goods and services and is paid by the consumer indirectly. Examples of indirect taxes include VAT, excise duties (cigarette, alcohol tax) and import levies. Example of VAT as an indirect tax VAT rates may be set at 20%. This percentage tax is known as an ad Valorem …
A progressive tax takes a higher percentage of tax from people with higher incomes. It means that the more a person earns, the higher his average rate of tax will be. In this case, the person earning £10,000 is paying 20% of their income in tax (total tax of £2,000) The person earning £20,000 is …
Main types of tax in the UK Income tax – This a tax on people’s income. The basic rate of income tax is 20%, paid on income over the income tax threshold of £10,400. National insurance contributions. Another type of income tax is national insurance contributions, which are based on a similar principle of taking …
A few years ago, I looked at the arguments for and against a tax on ‘fatty foods‘. Generally, I supported the idea of a tax on unhealthy foods because it is a way to price the full social cost of the good. It is an example of a Pigovian tax. A tax which internalises the …
Readers Question: Assess the effectiveness of the UK’s taxation structure in terms of reducing inequalities, negative externalities and unemployment. Some of the UK’s tax system is progressive. A progressive tax takes a bigger % of income from higher earners. The UK’s income tax system is progressive. In 2012-13, the tax threshold will be over £8,100 …
Readers Question: If a progressive taxation is going to supposedly “reduce the gap between the rich and poor”, how and why does this happen? A progressive tax means that we take a higher % of tax from those on high incomes (e.g. a 50% income tax rate for income above £150,000). If everyone paid a …