In a recession, demand is depressed, and it is expected to have a budget deficit. Trying to attain a budget surplus in a recession will involve higher taxes and lower spending – but these policies could make the recession worse. Therefore, it is better to wait until the economy recovers, and automatic fiscal stabilizers improve (higher growth automatically leads to higher income tax revenues)
Moreover, lower interest rate would increase in current account balances by since lower interest rates will raise in aggregate demand and then raise in aggregate demand will cause more imports and thus result in trade deficit. But because of QE is correlation effect between countries means that it is causal inference—when one country imports much, exports will follow. Hence, actually QE effects is result in increased trade balances rather than trade
In comparison, a person with a higher level of income is likely to save this additional income rather than spend it. In other words, lower and middle income taxpayers have a higher marginal propensity to consume. This consumption (purchasing) of consumer goods is important, especially during economic slowdown, to spur economic activity. Therefore, increasing taxes for the wealthy instead of the middle class is favourable for the economy. Another argument refutes the claim that lower taxes for the rich encourage them to invest more which brings about economic growth.
According to the trade-off theory, firms can optimize their own capital structure because they encounter a trade-off between the advantages and disadvantages of debt on firm's market value; rising leverage by increasing debt means that the firm can benefit from debt tax shields, which will increase its value (Modigliani and Miller’s (1963) Proposition I under corporate taxes). However, high leverage leads to higher (expected) direct and indirect costs of financial distress, thus, decreasing the firm’s market value. Direct costs include the legal and administrative costs of liquidation or reorganization. Indirect costs refer to the impaired ability to conduct business and to agency costs of debt that are specifically related to periods of high
If there the purchasing power tends to be excessive during inflation, it is curbed through increasing of taxes. They are progressive Direct taxes help reduce the gap that there is in the inequalities of people’s income. It therefore helps bring social equality. DEMERITS OF DIRECT TAXES Encourages tax evasion Direct taxes make a person to evade paying tax because of high tax rates and poor tax administration. Tax payers evade taxes by manipulating accounts to give incorrect information about their incomes It causes inconvenience Direct taxes tend to be inconvenient as they involve some procedures in the filing in of the returns.
There are also instances where the use of the ad valorem rate is preferable. In a country where the inflation rate is high, the use of the ad valorem rate will protect the base of the excise tax from inflation. It is also advisable to use the ad valorem rate when taxing luxury goods. Again, this will have the effect of progressivity in the tax system and it is fair towards the less prosperous taxpayers. QUESTION 2 1.
Taxing the wealth is an important aspect of modern democracy, especially at times like cutting welfare and increasing taxes on the middle earners. The OCED state that a wealth tax levy on the rich individuals could be very successful and should be compared with personal income tax in assessing the progressiveness od a tax regime. Wealth taxes will be paid out of income in order to address ability to pay concerns, a ceiling provision is usually included in net wealth tax legislation which states a maximum combined effective rate for income tax and wealth tax. In the long term a well-designed wealth transfer tax is likely to be more effective than a recurrent net wealth tax at reducing inequality in the distribution of wealth. This is because taxes on generation wealth transfers target and reduce the array of individual’s initial wealth
Increasing the cash-deposit ratio, the use of special deposits, use of directives, moral Suasion and funding. 2. The use of a Fiscal Policy: A fiscal policy involves the use of government tax (or income) and expenditure policies to regulate the economy. It includes: i. Tax Policy: The government could increase taxes on income.
Both of these ways can provide benefits for the economy but can also be costly for it as well. On one hand, financial liberalisation processes can enhance the pace of the economic growth of the market but on the other hand there is evidence that liberalisation programmes can decrease the stability level of the financial sector and thus making it more susceptible to a financial crisis event. We will try to investigate and understand the effects of financial liberalisation and more specifically we will try to understand the way its policies affect the development and the growth of the financial
Safeguarding taxpayers’ right in a country is a way to acknowledge taxpayers as partners with the Government in nation building, particularly where low degree of transparency and accountability are identified in developing countries topped with high level of corruption, overspending by the leaders of these countries. According to Moore (2009), accountability will lead to more tax revenue and less will leak into the pockets of the collectors, and the government itself will become more legitimate. (Moore, 2009). Taxation traditionally is associated with economic progress and development through revenue collection where taxpayers’ right approach to taxation needs more strategies to reach a fiscal framework where accountability, transparency and participation of taxpayers are encouraged before, during and after implementation of fiscal laws and policies. (Sharif, 2011