Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
20th Edition
ISBN: 9780134531984
Author: Roger LeRoy Miller, Daniel K. Benjamin, Douglass C. North
Publisher: PEARSON
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Question
Chapter 11, Problem 6DQ
To determine
How the taxes affect the incentives of people who are most productive and how the proceeds from the taxes affect their incentives?
Concept introduction:
Wealth Tax:
Wealth tax is a form of indirect tax. The tax imposed on the wealth of an individual is known as wealth tax.
Income Tax:
Income tax is a form of direct tax. The tax imposed on the income of an individual is known as income tax.
Explanation:
- Most observers propose that tax should be implemented according to one’s productivity. This means that the rich people must pay higher income taxes.
- Rich people can easily bear high wealth and income tax because they have the ability to pay higher tax. On the other hand, poor people cannot afford such taxes because it affects their livelihood. So, they have no incentive to work more.
- When proceeds from the taxes are given to the poor people it creates equitable distribution in the society and decreases the inequality gap.
- Such higher tax leads to an efficient and just distribution of the income among the people of the society because on one hand it decreases the income of the rich people and on the other hand, it increases the income of poor people.
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Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
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