IB Economics/Macroeconomics/Distribution of Income
Distribution of Income
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to raise gov. revenue
to narrow the gap between rich and poor e.g progressive tax
to safe guard health e.g. tax in cigarettes, alcohol
influence consumer spending e.g. lead free petrol
to control the economy (fiscal policy)
to control externalities
to stop/ reduce imports (tariffs) direct taxation: income tax
indirect taxation: tax that is included in expenses, levied on good/service and not on individual or organization
progressive taxation: tax increases as income increases, the bigger your income, the larger % you pay of tax
proportional taxation: tax percent remains constant regardless of income e.g. 10%
regressive taxation: tax increases as income decreases, the bigger your income, the smaller % you pay of tax
Profit Tax: a tax on the firms profits. Usually there are different rates for smaller and larger firms
Wealth Tax: A tax on your wealth on an annual basis
Inheritance tax/ Death Duties/ Estate Duties: when you die you leave behind an estate, the gov. taxes these estates
Gift Tax/ Capital Transfer Tax: a tax on large gifts
Capital Gains tax: a tax on the gain you make between buying and selling something. Usually refers to shares Transfer payments: payment by government as gift or aid and not for good or service. Laffer curve: a graph showing the relationship between tax rate and government revenue
Lorenz curve: a graph showing the distribution of wealth in the economy.
Gini coefficient: a number between 0 and 1 quantifying the distribution of wealth in the economy. 1 is perfectly unequal distribution and 0 representing perfectly equal distribution.
