Chap 12: Government objectives and policies

Types of taxation

• Direct taxation

• Indirect taxation

Direct taxation

Charged on income

Indirect taxation

Charged on spending

Fiscal policy

Using changes in taxation and government expenditure to manage the economy

How can governments affect business activity?

• Change the law

• Influence the rate of interest and exchange rate

• Change levels of government expenditure

• Introduce policies

Ways of governments affect business activity

• Infrastructure provision

• Legislation

• Consumer protection

• Competition policy

• Environmental legislation

• Trade policy

Anti-competitive practices

Attempts by firms to prevent competition

Ways of anti-competitive practices

• Increasing prices to higher levels

• Price fixing

• Restricting consumer choice

• Raising barriers to entry by spending huge amounts of money on advertising

Ways of competition policy

• Encourage the growth of small firms

• Lower barriers to entry

• Introduce anti-competitive legislation

Ways of trade policy

• protect jobs for the survival of domestic producers

• protect infant industries

• prevent duping

• raise revenue form tariffs

Types of trade barriers

• Tariffs

• Quota

• Subsidy

• Administrative barriers

Tariffs

A tax on imports

Quota

Physical limit on the amount allowed

Subsidy

Giving of financial support

Administrative barriers

Use of strict health and safety or environmental regulations

Dumping

a business sells goods in another country often below cost

Interest

Price of borrowed money

Monetary policy

Using changes in interest rates and the money supply to manage the economy