Tax matters

• Fiscal policy


  Refers to the government's use of taxation and government spending to regulate the economy
• Conditions the economy could be in

  • Inflation
  • Deflation
  • Low productivity
  • Unemployment
  • Unfavourable balance of payments
• Fiscal policy to remedy economic problems

  1. Restrictive fiscal policy to correct inflation (increase personal income tax, increase government borrowing, reduce government spending)

  2. Expansionary fiscal policy to tackle deflation (reduce personal income tax, reduce government borrowing, increase government expenditure)

  3. Reduce company profit tax, grant tax holidays, grant subsidies to increase productivity

  4. Increase government expenditure on employment generating ventures to reduce unemployment

  5. Increase import duties, grant subsidies to exporters, or reduce export duties to correct unfavourable balance of payments
• Tax


  A compulsory levy imposed by the government or its agencies on individuals, businesses, products and services to meet its expenditure
• Elements of a tax

  • Tax base (the item or object being taxed)
  • Tax rate (the percentage or proportion of the tax base to be paid as tax)
• Types of taxes

  • Direct taxes
  • Indirect taxes
• Direct taxes


  Taxes levied by the government or its agencies on the income of individuals and firms' profits, as well as on their properties. Examples include personal income tax, company profit tax, poll tax, capital tax, capital gains tax, expenditure tax.
• Indirect taxes


  Taxes imposed on goods and services, where the producers or sellers bear the initial burden before shifting them to the ultimate consumers in the form of higher prices. Examples include customs duties/tariffs, excise duties, sales tax, purchase tax, value added tax.
• Types of indirect taxes

  • Ad valorem tax (tax imposed on commodities according to their respective values)
  • Specific tax (tax imposed per unit of commodity irrespective of its value)
• Fiscal policy is used when there are fluctuations in economic activity such as recessions or booms.
• Government expenditure includes items like education, health care, defense, infrastructure, and social welfare programs.
• The government can use fiscal policy to influence the economy by changing tax rates, increasing or decreasing public spending.
• Inflation targeting is a monetary policy strategy where central banks aim to achieve a specific inflation rate through interest rate adjustments.
• Deflation occurs when the price level falls over time due to a persistent decline in consumer prices.
• Contractionary fiscal policy involves a reduction in government spending and/or an increase in taxation.
• Contractionary fiscal policy involves a reduction in government spending and/or an increase in taxes.
• Expansionary fiscal policy involves an increase in government spending and/or a decrease in taxation.
• Expansionary fiscal policy involves an increase in government spending and/or a decrease in taxes.
• Expansionary fiscal policy involves an increase in government spending or a decrease in taxes, while contractionary fiscal policy involves a reduction in government spending or an increase in taxes.
• Expansionary fiscal policy refers to policies that stimulate aggregate demand, including increased government spending and reduced taxes.
• The aim of expansionary fiscal policy is to stimulate economic growth by increasing aggregate demand.
• Disinflation is a slowing down of the rate at which prices are increasing.
• Disinflation is a slowing down of the rate of inflation.
• Deflation is a decrease in the general level of prices over time.
• Contractionary fiscal policy aims to reduce aggregate demand through tax increases or reduced government expenditure.
• Expansionary fiscal policy involves reducing taxes or increasing government spending to increase disposable income and consumption.
• Inflation is an increase in the general level of prices over time.
• Fiscal policy can be used as a tool to manage economic cycles by adjusting government expenditure and tax rates.
• Fiscal policy involves changes in government spending and taxation aimed at influencing aggregate demand and promoting economic growth.
• Fiscal policy refers to changes made to taxation and government expenditure as a means of influencing economic activity.
• Inflation targeting involves setting an explicit goal for inflation and adjusting monetary policy accordingly to achieve it.
• Fiscal policy can be used to stabilize the economy by adjusting government expenditure and tax rates.
• Fiscal policy can be used as an automatic stabilizer when there are changes in the economy.
• Expansionary fiscal policy aims to increase aggregate demand through increased government spending or reduced taxes.
• Fiscal policy can be used as an anti-inflation tool when there are signs of overheating in the economy.
• Fiscal policy involves changes in government spending and taxation to achieve specific economic goals.
• Fiscal policy refers to changes made to taxation and public spending policies by governments to influence macroeconomic outcomes such as GDP, inflation, and employment.
• Deflation is when there is a decrease in the general price level over time.
• Inflation targeting is an approach used by many central banks to manage monetary policy, focusing on maintaining price stability within a specific range.
• Public finance


  The aspect of economics which deals with government revenue and expenditure