Nobody downloaded yet

How Taxes Affect Economic Efficiency - Essay Example

Comments (0) Cite this document
Summary
How taxes affect economic efficiency The topic of potential benefits of taxes on the economic efficiency of a country has gained much attention in the recent years. It is true that various initiatives taken by a government have a significant impact on the scope of economic activities…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.2% of users find it useful
How Taxes Affect Economic Efficiency
Read TextPreview

Extract of sample
"How Taxes Affect Economic Efficiency"

Download file to see previous pages According to Keynesians, tax cuts have a negative impact on the growth of wages (Ryan, 2011). There are some countries where governments encourage international trade while on the other side, some raise barriers. Some governments impose just enough tax to support various government expenditures while some levy taxes which burden the whole population (Kroeger, 2011). Adam Smith is revered in the field of economics because of his remarkable work on free-market economics and taxation. There are many economists of the modern times who consider Adam Smith the best tax economist of all time. According to Smith, the resources of a nation are allocated in the most efficient manner through an 'invisible hand'. According to Smith's view, taxes should be levied in such a way that they optimize and satisfy four variables. These variables include equity, transparency, convenience, and efficiency. According to Smith, by imposing limited taxes, economies can maximize their wealth (Kroeger, 2011). Taxes are imposed by a government to support some basic functions. These legitimate functions include education, defense, and the construction as well as maintenance of roads. In a market economy, the allocation of resources depends on the forces of demand and supply. In order to understand the ultimate impact of tax on economics, it is imperative to evaluate this impact in terms of the purchasing power of individuals as well as the economy's aggregate supply. One of the basic concepts of economics is that an increase in demand leads to the production of more goods and services in order to fulfill the demand. It implies that if producers can sell more because of an increase in demand of their products then they need to produce more goods to satiate the increasing demand. The imposition of tax deprives tax payers from a portion of their money that they would have spend on consumption. If it is accepted that the imposition of tax only deprives people from money than it would be concluded that taxes have a negative impact on economy. However, by looking at the other side of coin, it can be comprehended that the money which people spend on taxes eventually turns into government's income. Government spends this money on the welfare of the public which in turns enhance the economic growth (Kroeger, 2011). The income of one person depends on the spending of others. When government spends the money, it ultimately turns into the income of the public. Similarly, when the public pays taxes, it becomes the income of the government. So, it is wrong to say that the imposition of taxes drops the aggregate spending in fact it causes it to increase. If tax payers save their money instead of paying taxes, it will impact government expenditures and will decrease the overall consumption and in turn the overall economic efficiency. Similarly, if government saves money and does not spend it then it would ultimately affect the public. It proves that the act of saving money is not beneficial for the overall economy of a country but it creates problems. This act is really harmful for the economy of the country. A very obvious example of the harmful effects of this act is the Great Depression. The Great Depression occurs because people who could have opted for spending money chose to save it. However, those who wanted to spend money were deprived of it (Kroeger 2011). The long term expenditures of government increase with the growth of population. Therefore government needs money to ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“How Taxes Affect Economic Efficiency Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1432227-how-taxes-affect-economic-efficiency
(How Taxes Affect Economic Efficiency Essay Example | Topics and Well Written Essays - 1500 Words)
https://studentshare.org/macro-microeconomics/1432227-how-taxes-affect-economic-efficiency.
“How Taxes Affect Economic Efficiency Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1432227-how-taxes-affect-economic-efficiency.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Advanced Economic Analysis (Economic efficiency)
...?Part 1. Economic efficiency is a that is attained in an allocation of resources where it is not possible to improve the welfare or utility of an agent without reducing the welfare or utility of another agent. According to the first fundamental theorem of Welfare Economics, through the self-interested pursuits of consumers and producers and the capacity of market prices of conveying information uniformly to consumers and producers alike, competitive markets ensures an efficient allocation of resources. The competitive process ensures efficiency (i) in exchange, (ii) in the employment of inputs in production and finally (iii) efficiency in...
22 Pages(5500 words)Essay
Economic efficiency of green buildings
...?Economic efficiency of green buildings: Literature review Environmental awareness has grown significantly over the years, with the result that almost all the sectors in the industry are now increasingly incorporating ‘green’ aspects within their respective business strategies. The construction and realty sector too is no exception. It can be clearly be stated, on the basis of the observations, that the design and operation of the built environment, presents both – an opportunity as well as an obstacle. According to the growing literature regarding the negative impacts of greenhouse gases, acts as a stimulus for the construction industry to increase their dependability on green and environmentally...
4 Pages(1000 words)Dissertation
Economic Efficiency of Green Buildings
...Economic Efficiency of Green Buildings 1. The environmental value of green buildings The net operating income and the capitalization rate for a building are the two key indicators of return on investment on a real estate property over a period of time. The value of a property is directly proportional to the net operating income from the property and is inversely proportional to the capitalization rate. According to Ito (2005), green buildings not only have a higher net operating income, but also a lower risk premium. Figure 1 (below) shows how green buildings generate more revenue by reducing various expenses, and how they have a lower capitalization rate due to...
5 Pages(1250 words)Essay
Effects on economic efficiency of government price controls and taxes
...? Effects on Economic Efficiency of Government Price Controls and Taxes of Effects on Economic Efficiency of Government Price Controls and Taxes Consumer Surplus Consumer surplus gives a measure of the distinction between the uppermost price a consumer is able to offer and the price the consumer indeed offers. The demand curve is of great use to measure complete consumer surplus in a market. It shows the eagerness of a consumer to buy a good at various prices (Gillingham & IMF, 2008). Consumers are eager to buy a commodity up to the level where the marginal gain of consuming the commodity is equivalent to its cost. The marginal gain is...
5 Pages(1250 words)Term Paper
Tax system contribution to economic growth
...? Tax system contribution to economic growth The idea that tax system affect economic growth has not been an issue of economists to divulge in but also policy makers. Policy makers currently consider taxation a major debatable issue as they try to outsmart one another in how to spur economic growth through tax reforms especially tax cuts (Irons, 2009). This is a clear indication of how significant a tax system is considered by many individuals with respect to rescuing ailing economy and increasing its growth prospect overtime. Economists and policymakers...
9 Pages(2250 words)Essay
Economic Efficiency
...are however best analysed with R&D problems and variations. The economic efficiency of resources could be examined in terms of consumption as more one person consumes, the less resources are available to other people for consumption but this would be applicable to phenotypes of private goods. In case of genotypes or public goods, one person's consumption may not affect the amount available to others. However both genotypes or phenotypes can give consumption access to some individuals and exclude others. This according to Sedjo is applicable to property rights in case of improved varieties of plants and animals. So, how a sustainable environment and...
7 Pages(1750 words)Essay
How do economic recession affect people's behavior
...your Economic Recession and Human Behavior Introduction Social scientists’ of the relation between human beings and economics revolves around the utilitarian theory and market process theory (Cleveland P.A., 2000). As Cleveland says, all human beings are rational and work to get maximum economic returns for their scarce resources and this is the basis for the utilitarianism. Market process theory suggests that the sum total of knowledge is continuously increased by individual customers who come to the market place to trade their resources and ideas. In this process, the benefit is accruing not only to the customer himself but to other customers as well. However, as the theory points out, the knowledge is never complete... and this...
2 Pages(500 words)Essay
Economic efficiency concepts
...Economic Efficiency Concepts Introduction There are various topics and studies which economists have delved into in the field of microeconomics. Mofatt (2009) defines microeconomics from The Economists Dictionary of Economics as "the study of economics at the level of individual consumers, groups of consumers, or firms... The general concern of microeconomics is the efficient allocation of scarce resources between alternative uses but more specifically it involves the determination of price through the optimizing behavior of economic agents, with consumers maximizing utility and firms maximizing profit." This is basically a study of...
6 Pages(1500 words)Term Paper
How Globalisation Affect Our Economic System
... How Globalisation Affect Our Economic System? The word ‘globalisation’ is almost interchangeable with the term ‘economic liberalization’. Standing almost at the end of the 21st century, a question may arise in our mind –whether this open economy, a direct product of globalisation, has actually been a boon to the world’s economy including the social and economic scenario. Careful thought brings out the consequences like recession, global financial crisis and other related impacts. However just like every problem has a solution this issue is also addressable. We have come too far to look back at the time of conquests and colonization. Hence globalisation cannot be abandoned for sure, but a multidimensional approach might help... reforms...
4 Pages(1000 words)Essay
Taxes
...Taxes Managing Director Finance Manager 25/07 Vehicles to Minimize Taxes I believe that tax planning is needed to reduce income tax now and in future and all the firms essentially require tax efficient financial planning. In this regard, I would like to identify some available mechanisms that could be used for minimizing of incomes tax, capital gains tax and estate tax. Currently many forms are making use of some remarkable vehicles to reduce taxation on their incomes. For example, whole life insurance is one of those vehicles which contract many tax benefits, i.e. if...
1 Pages(250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Essay on topic How Taxes Affect Economic Efficiency for FREE!
Contact Us