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tax tobin tax spahn tax tax equalization tax treaty exchange of information permanent establishment transfer pricing european union ftt foreign revenue rule trade custom duty tariff import export tariff war free trade free trade zone trade agreement ata carnet research academic mihir a desai dhammika dharmapala james r hines jr ronen palan joel slemrod gabriel zucman advocacy groups institute on taxation and economic policy itep oxfam uk tax foundation us tax justice network tjn tax policy center us religious church tax eight per thousand teind tithe fiscus judaicus leibzoll temple tax tolerance tax jizya kharaj khums nisab zakat by country all countries list of countries by tax rates tax revenue to gdp ratio tax rates in europe individual countries albania algeria argentina armenia australia azerbaijan bangladesh bhutan brazil bulgaria bvi canada china colombia croatia denmark finland france germany greece hong kong iceland india indonesia iran ireland israel italy japan kazakhstan lithuania malta morocco namibia netherlands new zealand norway pakistan palestine peru philippines poland portugal russia south africa sri lanka sweden switzerland taiwan tanzania united arab emirates united kingdom united states uruguay business portal money portal v t e this article is part of a series on public finance policies agricultural economic energy industrial investment social trade fiscal monetary policy mix fiscal policy budget policy debt internal deficit surplus finance ministry fiscal gap fiscal transparency fiscal union revenue spending deficit redistribution tax monetary policy bank reserves requirements discount window gold reserves interest rate monetary authority central bank currency board monetary base monetary currency union money supply trade policy balance of trade free trade gains from trade non tariff barrier protectionism tariff trade bloc trade creation trade diversion trade commerce ministry revenue spending non tax revenue tax revenue discretionary spending mandatory spending optimum balanced budget amendment economic growth fiscal illusion price stability wagner s law reform fiscal adjustment monetary reform economics portal politics portal v t e tax policy refers to the guidelines and principles established by a government for the imposition and collection of taxes it encompasses both microeconomic and macroeconomic aspects the former focuses on issues of fairness and efficiency in tax collection and the latter focuses on the overall quantity of taxes to be collected and its impact on economic activity the tax framework of a country is considered a crucial instrument for influencing the country s economy 1 tax policies have significant implications for specific groups within an economy such as households firms and banks these policies are often intended to promote economic growth however there is significant debate among economists about the most effective ways to achieve this 2 taxation is both a political and economic issue political leaders often use tax policies to advance their agendas through various tax reforms such as changes to tax rates definitions of taxable income and the creation of new taxes specific groups such as small business owners farmers and retired individuals can often exert political pressure to reduce their share of the tax burden the tax code is often complex and includes rules that benefit certain groups of taxpayers while shifting more of the burden to others 2 main reasons for taxation edit there are some main reasons why government needs to collect taxes 3 market failure mainly to discourage purchases of that product any tax creates a disincentive so consumers will reduce their purchases and seek alternatives taxes can create incentives promoting desirable behavior and disincentives for unwanted behavior taxes can change consumers behavior and thus influence the market outcome for example in the presence of externalities an omnipotent and ethical policymaker would want to change the market outcome to reach the social optimum otherwise there would be a deadweight loss of externality in such a case policymakers would implement excise taxes carbon tax etc 4 to generate revenue taxation is the most important source of government revenue 2 governments can use tax revenue to provide public services such as social security health care national defense and education changing the distribution of income and wealth taxation provides a means to redistribute economic resources toward those with low income or special needs tax revenue can be used for transfer payments such as welfare benefits philosophy edit policymakers debate the nature of the tax structure they plan to implement i e how progressive or regressive and how these taxes might affect individuals and businesses i e tax incidence the reason for this focus is economic efficiency as advisor to the stuart king of england richard petty had noted the government does not want to kill the goose that lays the golden egg paradigmatic efficient taxes are those that are either non distortionary or lump sum however economists define distortion only according to the substitution effect because anything that does not change relative prices is non distortionary one must also consider the income effect which for tax policy purposes often needs to be assumed to cancel out in the aggregate the efficiency loss is depicted on the demand curve and supply curve diagrams as the area inside harberger s triangle national insurance in the united kingdom and social security in the united states are forms of social welfare funded outside their national income tax systems paid for through worker contributions something labeled a stealth tax by critics administration edit the implementation of tax policy has always been a complex business for example in pre revolutionary colonial america the argument no taxation without representation resulted from the tax policy of the british crown which taxed the settlers but offered no say in their government a more recent american example is president george h w bush s famous tax policy quote read my lips no new taxes efficient tax administration is key to encouraging businesses to become formally registered thereby expanding the tax base and revenues on the other hand an unfair tax administration can harm the tax system and reduce the government s legitimacy in many developing countries the failure to improve tax administration while introducing new tax systems has led to widespread tax evasion and lower tax revenues it is important to keep tax rules clear and simple to encourage compliance as high tax evasion is associated with complicated tax systems as the tax administration ecosystem evolves with the introduction of new analytical tools digital information flows are increasing consequently the tax administration is operating in a way that increases incentives for compliant taxpayers 5 operating costs of tax policy edit modern taxation systems can impose a heavy burden on taxpayers particularly on small businesse taxpayers that burden typically consists of three elements firstly there are the taxes themselves secondly there are the efficiency costs variously referred to as deadweight losses or excess burden the third type of costs are compliance costs of taxation and finally there are the administrative costs sometimes referred to as operating costs of the tax system 6 administrative costs can be described as costs incurred by mainly public sector agents to administer the tax benefit system 7 the relationship between administrative and compliance costs of taxation is not always clear at first glance sometimes there might be an inverse relationship between them which is a phenomenon called the administrative costs compliance costs trade off 8 an example of this inverse relationship might be the implementation of a self assessment system in taxation however this trade off principle is not always the reality as it is for example possible to reduce both types of costs through some sort of simplification of the tax system or an increase in compliance costs might occur as a result of administrative inefficiency these types of costs together are called operating costs of taxation when implementing some new parts of tax policy or reorganizing it policymakers always have to consider the weight of administrative costs and compliance costs of taxation there are two main types of administrative costs direct administrative costs indirect administrative costs direct administrative costs edit direct administrative costs are on the government side the burden is borne by the government it is not immediately obvious exactly which activities should be attributed to the operation of the system p 19 6 administrative costs are mainly connected to running the tax collection office they include salaries of staff costs of legislative enactment relating to the tax system judicial costs of administration of the tax dispute system and many more indirect administrative costs edit indirect administrative costs are on the side of taxpayers the burden is borne by the government tax compliance costs are those costs incurred by taxpayers or third parties such as businesses in meeting the requirements laid upon them in complying with a given structure and level of tax sandford godwin and hardwick 1989 p 10 6 indirect administrative costs are mainly connected to the costs of complying with tax requirements it includes the costs of labour time consumed in completion of tax activities filling out forms record keeping the fees paid to professional tax advisers transfer pricing and many more compliance costs edit tax compliance costs are the costs incurred by taxpayers or third parties such as businesses in meeting the requirements laid upon them in complying with a given structure and level of tax 9 there is no consensus about what should and should not be included under the definition of compliance costs although one distinction usually made is between gross versus net compliance costs the difference between the two is made up of any financial or managerial benefit derived by the taxpayer from tax compliance however there is a possibility to define some indisputable examples of costs that are directly connected to the compliance of individual taxpayers these examples include the costs of labor and time required for the completion of tax activities such as acquiring the necessary knowledge to operate within the tax system properly or compiling and creating all documents needed 10 more examples include the cost of purchasing professional assistance for the completion of tax activities or other expenses connected to tax activities such as purchasing software and hardware other types of compliance costs such as the negative psychological effects on taxpayers as a result of the attempts to comply with the current tax policy or many types of social costs are very intangible and it is therefore hard to quantify them even though the effect of their existence is visible especially for individuals and small businesses equity vs efficiency edit an equity efficiency tradeoff appears when there is some kind of conflict between maximizing equity and maximizing economic efficiency the trade off between equity and efficiency is at the heart of many discussions of tax policy two questions are debated first there is disagreement about the nature of the trade off to reduce inequality how much efficiency do we have to give up second there is a disagreement about the relative value to be attributed to the reduction in inequality compared to the reduction in efficiency 4 some people claim that inequality is the central problem of society and society should simply minimize the extent of inequality regardless of the consequences to efficiency others claim that efficiency is the central issue these disagreements relate to social choices between equity and efficiency equity edit equity can be divided into two main groups horizontal equity and vertical equity vertical equity vertical equity is a method of taxation based on the principle that the higher the income of an individual is the higher the personal income tax liability i e as your income goes up you pay more 11 vertical equity is often more achievable than horizontal equity because horizontal equity is harder to implement it is not easy to define and it can be undermined by loopholes and deductions since this method takes into consideration the ability to pay taxpayers nowadays it is one of the most accepted taxation methods by various countries around the world the ability to pay principle says that the amount of a tax a person pays has to be dependent on the burden the tax will create about the wealth of an individual vertical equity operates on the principle of people with higher incomes paying more taxes through progressive tax rates in progressive taxation the amount of taxes paid increases with income in this tax system people are divided into tax brackets each tax bracket has a different tax rate with high income brackets paying more taxes with this taxation system the effective tax rates increase with income furthermore another possibility is the proportional tax method in which the income is charged at a single rate regardless of income this taxation method is also known as flat taxes horizontal equity the basic principle of horizontal equity is based on the concept of distributive justice in which taxpayers should pay the same level of income tax in proportion to their respective income groups most important but more costly is to define income groups knowing that each individual consumes and saves in different ways making it very hard for tax policymakers horizontal equity requires a tax system that does not give preference to certain individuals or companies it makes sure that we don t have discrimination on the grounds 12 horizontal equity is a constant topic of tax policy discussions and in many countries it is a cause of several exemptions deductions and special provisions efficiency edit efficiency for economists is equal to the concept of pareto efficiency pareto efficiency means the situation of resource allocation where the concept of net is dominant in other words we need to make someone worse to make others better under this efficiency to seek efficiency it is necessary to build a decentralized market mechanism and to build that mechanism the tax system is often seen as an obstacle here we need to think about the balance between efficiency and equity and the best point of this balance is called pareto improvement this is the ideal answer to reply for the question of which policies should be implemented 13 social choice edit the choices or decisions of the government are one of the social choices social choice consists of two elements individual level and societal level for the individual level each individual builds their preference and has their utility following the budgets constraint this ca...
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