Economics of Taxation at Universität Potsdam

Flashcards and summaries for Economics of Taxation at the Universität Potsdam

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Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Tax definition (Germany)
(Chapter 2)

Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Tax principals
(Chapter 2)

Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Tax types
(Chapter 2)

Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Specific taxes
(Chapter 2)

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Ad valorem tax
(Chapter 2)

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Tax base
(Chapter 2)

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Tax scale
(Chapter 2)

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Average tax rate
(Chapter 2)

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Marginal tax rate
(Chapter 2)

Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Progressive/regressive/constant taxation
(Chapter 2) 

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Tax revenue elasticity
(Chapter 2)

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Concepts Tax Incidence 
(Chapter 3)

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Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:

Economics of Taxation

Tax definition (Germany)
(Chapter 2)
  • Payment
  • No special service in return
  • Levied by a jurisdiction on the basis of a general rule
  • Aims at generating public revenues 
  • Tariffs are special taxes

Economics of Taxation

Tax principals
(Chapter 2)
Ability to pay principle 
  • Horizontal justice: equal income should be taxed identically
  • Vertical justice: higher ability to pay should not result in lower tax burden
  • Income as a measure of ability to pay
Benefit principle
  • Who benefits?
Decision neutrality
  • Market efficiency calls for undistorted decisions
  • But: green taxes

Economics of Taxation

Tax types
(Chapter 2)
Direct taxes 
  • Fall on legal or natural persons and may condition on special characteristics of the tax prayer (e.g. Income tax) 
Indirect taxes 
  • Based on sales or transactions, no consideration of personal characteristics (e.g. VAT) 
  • Assumption of tax shifting

Economics of Taxation

Specific taxes
(Chapter 2)
= Unit taxes
  • Producer price (p): net receipt per unit sold
  • Consumer price (q): gross price including tax
  • Tax wedge (t) = q-p

Economics of Taxation

Ad valorem tax
(Chapter 2)
= proportional to producer price
  • Net ad valorem tax: given tax rate q, the consumer price is: q=p(1+θ)
  • Gross ad valorem tax: the rate r is applied to the tax inclusive amount: (1-τ)q=p

Economics of Taxation

Tax base
(Chapter 2)
Measure (income, sales, wealth, etc.) to which tax scale is applied to. 

Economics of Taxation

Tax scale
(Chapter 2)
T=T(y)

Economics of Taxation

Average tax rate
(Chapter 2)
=T(y)/y

Economics of Taxation

Marginal tax rate
(Chapter 2)
T'=dT/dy

Economics of Taxation

Progressive/regressive/constant taxation
(Chapter 2) 
  • Progressive Taxation: average tax increases in income (if marginal tax rate is greater than average tax rate) 
  • Regressive taxation: avg. rate decreases in income
  • Constant avg. rate: proportional taxation

Economics of Taxation

Tax revenue elasticity
(Chapter 2)
By how much does revenue change if the tax base changes by one percent? 

η(T,y) = δT/δy*y/T=marginal rate/average rate

η>1 -> progressive scale
η=1 -> proportional scale
η<1 -> regressive scale

Economics of Taxation

Concepts Tax Incidence 
(Chapter 3)
Absolute tax incidence: burden of taxation when all other taxes and expenditures are assumed constant

Differential tax incidence:  1€ of tax revenue of tax A is substituted by 1€ of tax revenue of tax B

Budget incidence: joint tax and expenditure increase

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