Thursday, June 7, 2007

Benefits of regressive taxation

Regressive taxation includes taxes on alcohol, cigarettes and VAT.

Definition of regressive taxes - takes a higher % of income from those on low incomes.

Arguments for regressive taxes.

cigarette taxes help overcome market failure
indirect taxes don't affect work incentives like income tax - non distortionary and therefore are efficient

Arguments against regressive taxes.

Increases inequality. Poor have a reduction in discretionary income
Increasing income tax in UK would have little impact on reducing work incentives.

More on regressive taxation

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