Student Number: 109031116
Program Title: MSc Finance
Module Title: Public Finance
What are the likely impacts of an increase in the rate of the personal income tax upon the supply of work effort; personal saving and risk taking? What empirical evidence exists to support your answer?
Introduction
The main purpose of taxation is to fund public sector activities and affect the economy. The design of an optimal personal income tax system is dependent upon the how well the responses by individuals are known. Tax changes impact government revenue; as a result government is particularly keen on assessing the likely impact of a change. Researchers have heeded the call and come up with theories and undertaken empirical work to discern these impacts.
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This makes it difficult to determine what deviations would result from the impact of income tax.
Confronted with increased tax an individual can react in two contradictory ways. Firstly, a higher income tax causes less reward from the same amount of effort and it can be assumed that risk taking may be curtailed. Secondly, that same increase in income tax may also lead the individual take on more risk in order to offset the decrease in after tax income. From theory alone the result is ambiguous as the decision is not solely made on the financial considerations and may include personal matters.
The classic view has been that taxation lowers risk taking behaviour through its lowering of expected return rates. (Domar & Musgrave 1944) were the forerunners in the work on the effect of taxation on risk taking. Their view was that investors shared some of the risk with government which in some cases resulted in an increase in the holding of the risky assets. (Cullen & Gordon 2007) have similar results findings concluding that there is a positive relationship between income tax rates and risk taking. This is a result of an increase in income tax saved from business losses thus encouraging risk
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This can be achieved by providing a conducive environment that provides incentives to work, promotes risk taking and inculcates a culture of saving. The path towards an optimal tax system is littered with trade-offs and in cannot therefore be viewed in isolation. The impact of fiscal policy is more potent when it is implemented in conjunction with monetary policy.
Several theories on how income taxes affect work effort, risk taking and saving have been development but the collection of empirical evidence to support these theories has lagged somewhat. Below are some of the reasons why conclusions have been difficult to draw.
• In order to arrive at conclusions of research, certain assumptions are made. These may ignore the realities that individuals face.
• Time series data is good quality time series data has been difficult to come by and when its available it may at times not be reliable
• Analysis of broad data may be prejudiced by individual attributes that affect decision making.
• Much of the evidence has been for the short run and may not give a well-defined response to the effect of incentives especially in the long
As a result of searching the existing literature, the researcher was able to obtain data that correlated exceptionally well with the research topic. Indeed, the researcher gathered pertinent information from secondary sources; however, the primary sources of data were needed to draw a logical conclusion of the research at hand. So, the next step was major section III, Research Methodology. Being
Of course, trying to predict future tax rates is highly questionable, but you would expect as your career grows that you earn more money (and pay higher taxes, irrespective
When it comes to the research the tax has affected the country in a negative way, simply because the war was fought because of taxes that were seen as not needed as well the fact that the country fought the British to oppose taxes, and then Washington turns around and imposes a tax on the people after what they sacrificed to fight for the right to be free of taxes and to be supportive of their new government was tough because people did not have money to pay taxes at
When Myers explained how tax structure is, she said, “the 400 Americans with the highest adjusted gross income saw their effective tax rates plummet from 30 percent in 1995 to 17 percent in 2007” (par.14). Myers tells us that the reason for this is because some big companies, like General Electric in 2010, don’t pay corporate taxes, and still benefit from millions of dollars in government subsidies. The people should know where their tax dollars are going, and to show that most of the time we don’t even benefit from what we pay for taxes, it’s the big companies and wealthy class that get the benefits. The Shorthorn readers may find it important to know how much they are spending on taxes and where their tax dollars are going, but Myers doesn’t provide enough information to back her
The income tax would try to even the playing field, so the rich would have to pay higher taxes while the poor pay smaller taxes. Also, the income tax would serve as payment for the government so in turn they can pay for different areas of
In this essay, I will show some of the benefits of implementing a single flat income tax. I will also some of the effects the flat tax will have on the lower class, middle class, and the upper class. I will then show the effects of implementing a flat tax on the United States economy. The annual cost of compliance in America is $370 billion.
Here’s the deal, the government is debating whether federal income tax rates in American should be raised or not. Raising federal income tax rates in America generates resources rapidly, offsets cost of lower families, and creates a savings income. Raising tax reduction on the American people will contribute towards
Those who advocate for higher taxes argue that the money taken from the rich could be put to uses like healthcare and education. The side that is against higher taxes debates that the long term effects of taxing the rich could cause a tremendous amount of damage, particularly with losing jobs. The rich should not be taxed more because it takes away the right to earn, and keep, a considerable amount of money and it can both damage the economy and lead to socialism which in turn has a high probability of leading to widespread poverty and a corrupt government. Taxing the rich negatively impacts the economy of a country in a plethora of ways. Taxing of the rich and businesses coincide because many of those who are wealthy own a business.
Some people with be mad about getting taxed more and some people wouldn’t mind getting taxed more as long as it is doing something like helping someone that needs help or saving their lives. “About 800 000 people commit suicide every year… Mental disorders and harmful use of alcohol contribute to many suicides around the world. ”(www.who.int) The people I think that won’t like getting taxed the most are people like Lennie and George who are struggling with money as is
The term “regressive” describes the reality of a tax taking more of a poor person’s income than that of a wealthy person. Before 1913, economists
Literature review: spending of government sometimes cannot be stimulative because the government each money may be one dollar can injects to the tax that comes in economy or it is borrow in the future out of the economy. Tax rebates not always help the economy to increase because it comes under government grants and they do not encourage productivity Federal spending is considered as out of control and can grow faster when they are projected in the future that can burdens Americans and making future saddle foe generations with a massive, and cannot be affordable debt. It is necessary that congress should cut current spending and can save for future through entitlement reforms. It can be achievable by not raising taxes and assuring the grants
2014). This group of customers will have an even harder time buying luxury goods when they have to pay more tax. Due to their price sensitivity they will be likely to not buy the good anymore after an increase in price. An example to illustrate this situation can be a person buying a wedding ring once in his life or going on a relaxing holiday. While before the luxury tax he might have been able to go on a luxury holiday every 10 years, he might now decide to not go anymore at all.
The federal tax system is plagued with issues: It doesn 't raise sufficient revenue to back government spending, it is unpredictable, it makes results that are unreasonable, and it impedes monetary productivity. This part examines a few approaches to enhance charges, including making an esteem included duty, expanding natural taxes, improving the corporate expense, treating low-and center pay workers evenhandedly and productively, and guaranteeing suitable tax collection of high-wage family units. A good tax system raises the incomes expected to fund government spending in a way that is as basic, evenhanded, and development well growth as could reasonably be expected. The United States does not have a good tax system.
But, taxing the rich more also wouldn’t be impartial that fair because the government already wastes much of the money pay they collect. Even though the wealthy have a higher income and can afford it, most of the wealthy worked hard to get where they are now. If we make the Making the rich pay higher taxes will have advantages and disadvantages as well.
In quantitative research, variables are identified and defined, and then relevant data is collected from study participants. A strength of this type of research is that the data is in numeric form, making it easier to interpret. It also studies the relationship between independent and dependent variables and can address questions such as does a relationship between variables exist, what is the direction of the relationship, how strong is the relationship between the variables, and what is the nature of the relationship. To be able to discover and answer the cause-and-effect relationship is a strength of quantitative research. Lastly, in quantitative research, the study can either be experimental or nonexperimental, meaning clinical trial or observational study, allowing for different types of research studies to be conducted.