Note 9--Taxation

TaxationThere are two types of tax:1) Direct taxation: Tax levied on the income,wealth and benefit of people like corporation tax,income tax,capital gains tax. Here,we can refer the progressive tax that it rises as income rises. Therefore,direct tax is always progressive tax.2) Indirect tax: Tax on the spending of goods and services,such as exercise duties and value add tax. They are generally regarded as regressive tax that it falls as income goes up or takes bigger percentage from income of the poor.
Taxation is the money collected by the government to finance their spending and by adjusting the tax,someeconomic objectives can be achieved.1)The decreasing tax can encourage people to consume more as their disposable income increases.Therefore,the investmentwill be increased that economic growth will be raised as well. 2)The decreasing tax can encourage unemployed people to seek jobs as their disposable income increases.3)But sometimes,increasing tax can reduce the consumption and demand to reduce inflation.
However,using tax to affect the economy is not easy because it will be very difficult to measure.
Tax is imposed on people that no one can avoid it in order to ensure the normal operation by government. However,a lot of people who want to escape from the indirect tax will go to black market which is called informal economy.In this economy,consumers don't need to pay the tax which attract many people. But it can't be included in the calculation of nationl income.