Econ 2305 Chapter 6 Funding the public sector

Government budget constraint

The limit on government spending and transfers imposed by the the income the government has available from its income sources.

Tax base

The volume of goods, services, wealth and income subject to taxation

Tax rate

The proportion of a tax base which must be paid to a government as taxes

Maginal tax rate

The change in tax rate over change in income. % of additional dollars which must be paid in taxes

Average tax rate

The total tax payment divided by the total income

Capital gains

A positive difference between the purchase price and the sale price

Double taxation

When the same income is taxed more than once. Most commonly occurs when a corporations profits are taxed, then the dividends given to share holders are taxed.

Retained earnings

Earnings which the evil(corporations) saves or retains for investment in other things.

Tax Incidence

The distribution of tax burdens among groups of society

Sales taxes

Taxes assessed on the prices paid on most goods and services

Static tax analysis

This assumes that changes in the tax rate have no effect on the tax base. The market will not react and change strategies to better operate; it will simply operate exactly the same regardless.

Exise tax

A tax on a particular good or service, such as on gas or cigarettes.