Economic Effects of Taxation Quiz

Income tax is levied directly on individuals or entities' income.

Taxation primarily aims to provide funds for government expenditure and services.

Indirect taxes are imposed on goods or services rather than directly on individuals' income or profits.

Non-taxable income refers to earnings that are not subject to taxation, such as interest earned on certain savings accounts.

Tax brackets categorize income ranges and apply corresponding tax rates to each range.

Consumption taxes are levied on goods and services consumed, such as the value-added tax (VAT).

In a progressive tax system, tax rates increase as income levels rise to ensure higher earners pay a larger portion of their income in taxes.

The Laffer curve demonstrates the correlation between tax rates and the resulting tax revenue, suggesting an optimal tax rate for maximum revenue.

Tax incidence refers to who ultimately bears the economic burden of a tax.

Tax avoidance utilizes legal strategies to reduce tax liabilities, while tax evasion involves illegal methods to evade taxes.

Regressive taxes take a larger percentage of income from low-income earners than from high-income earners.

In a proportional tax system, individuals pay the same percentage of their income in taxes regardless of income level.

A tax deduction reduces the taxable income, lowering the amount of income subject to taxation.

Tax credits directly decrease the amount of tax owed, whereas deductions lower the taxable income.

Taxable capacity refers to the highest possible tax revenue a government can collect without causing negative economic consequences.

Tax incidence analysis assesses how the burden of a tax is distributed among different economic agents.

Tariffs increase the cost of imported goods, while subsidies provide financial support to producers.

Tax incidence analyzes who bears the economic burden of a tax, while tax impact examines the initial consequences of a tax policy on the economy.