Economics of Taxation at Universität Potsdam
Flashcards and summaries for Economics of Taxation at the Universität Potsdam
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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
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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
Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:
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
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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
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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
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Tax base
(Chapter 2)
Measure (income, sales, wealth, etc.) to which tax scale is applied to.
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Tax scale
(Chapter 2)
T=T(y)
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Average tax rate
(Chapter 2)
=T(y)/y
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Marginal tax rate
(Chapter 2)
T'=dT/dy
Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:
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
Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:
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
Exemplary flashcards for Economics of Taxation at the Universität Potsdam on StudySmarter:
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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