Theories of taxation

Walker also criticized this theory. Hence, this theory differs from the Keynesian one and assigns a rather passive role to state regulation of economic processes. All the theoretical deliberation and scientific debates of those years were focused on one singular aspect: Neo-Keynesian Taxation Theory Taxation problems also constitute an important element of the neo-Keynesian theory.

Theories of Taxation

If this be the case, we reach the faculty or ability theory of taxation. A tax, as known, is compulsory contribution made to the public authorities to meet the expenses of the government and the provisions of general benefit.

Theories of Taxation: Benefit Theory Cost of Service Ability to Pay

The total loss of utility as a result of taxation should be equal for all taxpayers the rich will be taxed more heavily than the poor Equal proportional sacrifice: Arthur Laffer contributed considerably to the neoclassical taxation theory.

Advantages and limitations[ edit ] The advantage of the benefit theory is the direct correlation between revenue and expenditure in a budget. The proportional loss of utility as a result of taxation should be equal for all taxpayers Equal marginal sacrifice: On other hand, another person earning income buys property; he will be subjected to taxation.

In this context, Canard made a beautiful narration of diffusion theory. In conclusion, taxation in Tanzania is of virtue role in boosting up Tanzanians economy and the end product of taxation is seen in the development of the provision of various social services like building of Hospitals, Schools, development of infrastructure just to mention a few.

The point of view seems unsound and unfair in every respect; for example, a person having a large family to support has to spend more than a person having small family. A good tax system should be efficient in that it should be able to waste as little money and resources as possible.

All these costs are those that are incurred by the government to administer the tax system. Also, it is possible to make people believe that the cause of inflation is the raising of prices by greedy businessmen or of wages by labor unions.

Such a differential expenditure, changes the relative factor and product prices. Thirdly, we come to a form of distribution which may be called a qualified proportional one. This therefore will entail the least aggregate sacrifice the total sacrifice will be the least. And the tax policy of socialism is to confiscate all private property.

E ] Websites http: It is assumed that the budget changes occur with a classical system, where full employment is maintained automatically. However, Musgrave admits that the concept of specific expenditure incidence and differential expenditure incidence is not much useful and significant as the concept of differential tax incidence, to analyses the problem of incidence of taxation and transfer of resources.

Hence the outcome will depend on the response of the two parties. People in equal positions should be made to pay the same amount of taxes. The higher the tax rate, the higher the motivation for tax evasion. Wages and profits were for the most part cost of production.

Top 4 Theories of Tax Shifting

If the buyer feels that the price of an article is too high, he can reduce demand or postpone demand and force the seller to accept a reduced price.

According to this theory, taxation policy should be developed under the same assumptions: The diffusion theory of incidence is shallow and misleading. Under such a situation, the effect of change in public expenditure upon distribution is called specific expenditure incidence.

Theories of Taxation

How justice can be achieved is a very crucial element of taxation system. Moreover, the extension of the powers of governments and the creation of modern greater states has necessitated larger revenue for the administration of states.

Some common questions include those such as: It is not possible to estimate the benefit enjoyed by a particular individual every year5.

Theories of taxation

A number of theories have been put forward by different economists explaining how justice in taxation can be achieved among which the following are important theories of taxation and are discussed as follows: Public Expenditure, Taxation and Borrowingpages Fundamentally, this tax policy change involves no resource transfer to public use and imposes no net burden on the private sector.The two central principles of taxation relate to the impact of tax on efficiency concerned with the allocation of resources) and equity (concerned with the distribution of income).

As the major principles of taxation in any system, it is worth taking an in-depth look at “efficiency” and “equity (fairness)”. The Theory of Taxation and Public Economics presents a unified conceptual framework for analyzing taxation--the first to be systematically developed in several decades.

The Theory of Taxation and Public Economics a princeton university press princeton and oxford iii 2/8/ PM. 10 Taxation of Transfers a Private voluntary transfers, from one individual to another, may be sub.

What one’s theory of taxation fi­nally amounts to is his theory of government, because taxing is an integral part of the governmental process. And there are really but two basic and fundamentally op­posed theories of. What one’s theory of taxation fi­nally amounts to is his theory of government, because taxing is an integral part of the governmental process.

Taxation Theory

And there are really but two basic and fundamentally op­posed theories of government. THEORIES OF TAXATION Tax or taxation is a compulsory contribution to the state revenue, levied by the government on personal income and business profits or added to the cost of some goods, services and transactions, at fixed rate mostly proportionate to the amount on which the contribution is levied1.

Theories of taxation
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