Four theories of taxation

Jul 15, 20 taxation is the earliest and most prevalent form of government interference with the economic life of individuals and business enterprises. Although they need to be reinterpreted from time to time, these principles retain remarkable relevance. In a classical system, you have regressive, progressive and proportional. The theory of taxation and public economics on jstor. Secondly, a tax imposes a general obligation on the tax payer. The right of the chief authority to collect taxes, and the general policy which determines who is to be taxed, how much the tax shall be, and for what purposes it shall be levied has always been a. Ppt 1 0 theories of taxation2 ciku nderitu academia. Ideally, teams consist of four members from one pony club competing against. These principles are still considered to be the starting point of sound public finance. Governments at all levels national, regional and local need to raise revenue from a variety of sources to finance publicsector expenditures adam smith in the wealth of nations 1776 wrote. In this chapter, we present four theories that explore aspects of persuasive communication. The first couple pages of the second part of book v set up smiths principles, or maxims, of taxation. The setting is the world of the two fundamental theorems of welfare economics, modified to include an income tax to accomplish redistribution in light of the infeasibility of distortionfree individualized lumpsum taxes. Meade, the meade report on the structure and reform of direct taxation london.

There is a version of the benefit theory known as the voluntary exchange theory. The impact of taxation is integrated into growth models by its impact on the individual growth variables, which are capital accumulation and investment, human capital and technology. Canonsprinciples of taxation by adam smith some other. The theory of taxation and public economics is usefully conceptualized in terms of a core framework. Lucy martin yale university september 18, 2014 abstract while corruption is a key challenge for state development, we still know little about what fac. Theories of taxation theories of taxation a taxation.

Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well. The most important source of government revenue is tax. The economics of taxation is a useful and concise guide to the modern economic theory of taxation. In particular, the maxims of taxation laid out by adam smith are the precursors to the same principles argued by todays tax experts across the political spectrum. Theories of taxation which the government adopts should be equitable so that tax avoidance is decreased. Adam smith, the father of modem political economy, has laid down four principles or cannons of taxation in his famous book wealth of nations. The theory of taxation for developing countries english. And there are really but two basic and fundamentally opposed theories of government.

Public finance is the term, which has traditionally been used or applied to the packages of those policy problems, which involve the use of tax. This article throws light upon the top four theories of tax shifting. Such things as defending the country and maintaining the institutions of good government are of. This article throws light upon the four main types of taxes charged on taxpayers. Governments at all levels national, regional and local need to raise revenue from a variety of sources to finance publicsector expenditures. Tax policy has farreaching implications for economic development and public administration. The analysis in this paper is based on extended neoclassical growth model of mankiw, romer and weil 1992, and for the verification of relation between taxation. What ones theory of taxation finally amounts to is his theory of government, because taxing is an integral part of the governmental process. This principle suggests that the cost incurred by the government in providing public goods to satisfy social wants. Canon of equality, or ability is considered j to be a very important canon of taxation. A cinematographic film owner, lessor, or distributor shall pay a tax of a twentyfive percent 25% of its gross income from all sources within the philippine. This book, which presents a modern theory of public finance, brings together many of the most distinguished economists who have written on the subject. Influential theories have been the ability theory presented by arthur cecil pigou and the benefit theory developed by erik lindahl. The theory of taxation and the tax system springerlink.

What are the different theories of taxation answers. Jan 14, 2011 theories of taxation attempts to provide a theoretical grounding to the practice of taxation are reflected in various theories of taxation, the evolution of which took place together with the development of various directions in economic thought. Proportional, progressive, regressive and degressive taxes 3. Basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime. The theory of taxation for developing countries english abstract.

The book nicely relates the modern theories to current policy debates in the united states and europe, and. An important question widely discussed in public finance is what kind of tax system is fair, just or equitable. Theories of taxation a taxation theory may be derived on the assumption that there need to be any relationship between tax paid and benefits received from state activities. It appears that in developing a pure income tax system, three theories are of particular importance. This theory was advocated by the physiocratic school of thought in france during the middle of. Governments at all levels need to raise revenue from a variety of sources to finance publicsector expenditures. Thomas dimopoulos theories and philosophy of p roperty taxation two parties. Mar 22, 2017 the power of taxation proceeds upon the theory that the existence of the government is a necessity, that it cannot continue without means to pay its expenses and that for this means it has a right to compel all its citizens and property within its limits to contribute. Governments make use of taxation as a tool to generate revenue, discourage undesirable behavior, reduce inequality, distribute resources and to protect local industries. A synthesis article pdf available in social choice and welfare 171. 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. Adam smith is widely regarded as the godfather of classical economics, but also deserves credit as a fundamental thinker in public finance.

Taxation can be collected from a number of sources diagrammatically shown in the circular flow of income figure. Dye and england assessing the theory and practice of land value taxation 3 executive summary t he land value tax is a variant of the property tax that imposes a higher tax rate on land than on improvements, or taxes only the land value. As seen above, equity in taxation was the first canon of taxation on which adam smith laid a good deal of stress. In fact, different writers have formulated the different theories, at different times, relating to the equitable distribution of the burden of taxation among the people. A good tax system follows the four principles of taxation. First, a tax is a compulsory contribution made by the citizens to the government and this contribution is for general common use. A taxation theory may be based on a link between tax liability and state activities. These theories seem to be more important than ever, particularly in light of the current administrations interest in tax reform. Apr 17, 2007 these theories seem to be more important than ever, particularly in light of the current administrations interest in tax reform. Physiocrats believed that there is an inherent tendency for all taxes to be concentrated on objects or classes which enjoy a surplus. According to john stuart mill, the four principles of taxation are that the system be efficient, understandable and equitable and those who benefit from publiclyprovided services should sponsor and pay for those services through taxes. The right of the chief authority to collect taxes, and the general policy which determines who is to be taxed, how much the tax shall be, and. Theory of taxation to theories, and this page should be renamed to theories of taxation. A tax is a compulsory payment made by individuals and companies to the government on the basis of certain wellestablished rules or criteria such as income earned, property owned, capital gains made or expenditure incurred money spent on domestic and imported articles.

Several theories of taxation exist in public economics. Thescience of taxation coillprises two subjects to which the character of pure theory may be ascribed. The pure theoey of taxation the theory of the inciilence of taxation. It will be especially useful for a graduate course in public economics, because the analytics are both sophisticated and well explained. From wellcrafted public relations campaigns designed to foster positive attitudes about a company to telling a story to con.

Theories of taxation benefitreceived theory it is implied that the state provides certain facilities its civilians who should, therefore, contribute to the cost or value of these facilities in proportion to the benefits received by them limitations of benefit received theory. The power of taxation proceeds upon the theory that the existence of the government is a necessity, that it cannot continue without means to pay its expenses and that for this means it has a right to compel all its citizens and property within its limits to contribute. May 12, 2015 intoduction to public finance and taxation theory. Such things as defending the country and maintaining the institutions of good government are of general benefit to the public. The economists have put forward many theories or principles of taxation at different times to guide the state as to how justice or equity in taxation can be achieved. Taxation is the earliest and most prevalent form of government interference with the economic life of individuals and business enterprises. Smith constructed four maxims of taxation for public funding. According to evolutionary theory, government originates from a family or clanbound structure, which can explain the formation of the worlds first political structures.

On the basis of assessment, rather than on the point of assessment, taxes are classified into. Pdf the benefit and sacrifice principles of taxation. Essentialsfeaturescharacteristics of a good tax system theories of taxation proportional versus progressive taxation taxable capacity impact and incidence of taxation direct tax and indirect tax diffusion theory of taxation. Theories of taxation benefit theory cost of service. This theory was advocated by the physiocratic school of thought in france during the middle of the 18 th century. Attempts to provide a theoretical grounding to the practice of taxation are reflected in various theories of taxation, the evolution of which took place together with the development of various directions in economic thought. The 18thcentury economist and philosopher adam smith attempted to systematize the rules that should govern a rational system of taxation.

Adam smith devoted a significant portion of the wealth of nations to the issue of taxation. They are 1 proportionate to incomes or abilities to pay 2 certain rather than arbitrary 3 payable at times and in ways convenient to the taxpayers and 4 cheap to administer and collect. Although portrayed as theories of persuasion, each of these viewpoints can be applied to a wide variety of communication contexts. Major theories of the origins of government course hero. Major theories of the origins of government there are four major theories of how government originates. Who should be taxed, how much, to what purpose, and in what manner. Assessing the theory and practice of land value taxation. Musgrave, public finance in theory and practice, new york.

Taxation, imposition of compulsory levies on individuals or entities by governments. There will be harmonious living, which will lead to a virtuous life. The initiator of the keynesian taxation theory was john keynes. According to this theory, the state should levy taxes on individuals according to the benefit conferred on them. Hidden taxes the tendency of taxpayers to revolt against high taxes causes tax collectors to try to hide the tax burden so that the taxpayer will hardly be aware. In this we have two theories, namely, the socio political theory and the expediency theory.