In: Economics
A) What is the difference between the marginal tax rate and the average tax rate? What is the difference between the statutory tax rate and the effective tax rate? Explain.
B) Compare and contrast tax deductions and tax credits in terms of both efficiency and vertical equity.
C)Is it possible for the government to impose a tax that causes the market price of the good to fall? Explain.
A ) Marginal tax rate means calculation of percentage of tax applied to income for each tax bracket.It means it is the percentage of tax calculated of the taxable income on which exceeding threshold limit.Marginal tax rate is the calculation of marginal tax.
While average tax means the percentage of tax which is paid on total income earned hence both are different.Average tax means what is the average of what we paid on earned income.
Statutory rate means the the rates which is imposed by law.Statutory means enforceability by law.hence it is those rates which is paid by person after taking deductions.
Effective rates means those average rates which is effective for taxed on individual's earned income.It is the tax rates which on person is taxed.
B) Tax deduction means reduction of taxable income through exemption, deduction of tax law.When a person earn taxable income then he can also get relief in taxable income by depositing some amount in insurance,Provident fund ,donation etc.hence his income is reduced upto that deductions.
While tax credit means directly reducing tax payable by a person.Tax credit is more efficient because in this case a person can get direct deduction of tax paid .Hence its reduce his total tax due.
C) No it is not possible.Because higher tax increases the cost of good .In that case market price of good is rises .hence reduction of market price is not possible because tax burden increase the cost of goods.its market price is increase .