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Macroeconomics

Types of Tax Systems

There are three main types of tax systems, each with very different properties: progressive, proportional, and regressive. This article will describe the most important details of each of these systems, and will also provide a comparison of the three to ensure full understanding. Direct and Indirect Taxes Direct taxes are taxes on…
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Regressive Tax

A regressive tax is one that is applied so that the rate of taxation decreases for those who earn higher incomes (so that the rich pay a smaller percentage of their income in taxes than the poor). In such a tax system, those with higher incomes experience a smaller burden of taxation than those with lower incomes. This is particularly true because,…
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Proportional Tax

A proportional tax is a kind of income tax wherein all taxpayers are taxed at the same percentage rate, no matter how high or low their income. A proportional tax system mean that everyone experiences the same tax rate, whether low, middle, or high-income. This form of tax is quite different than a progressive tax system, which involves different…
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Progressive Tax

A progressive tax involves taxing lower-income citizens at a lower rate than higher-income citizens. As a member of a society with a progressive tax, the tax rate you are placed in is based on your income—whether you can afford to pay a certain tax level. Higher-income earners have a greater percentage of their wealth and income taxed. A…
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The Crowding Out Effect

The crowding out effect is a prominent economic theory stating that increasing public sector spending has the effect of decreasing spending in the private sector. In other words, according to this theory, government spending may not succeed in increasing aggregate demand because private sector spending decreases as a result and in proportion to…
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The Circular Flow of Income

The circular flow of income is illustrated in the circular-flow model of the economy, which is one of the most significant basic models within economics. This model shows how different units in an economy interact, breaking things down in a highly simplified manner. It shows how household consumption is a firm’s income, which pays for labor and…
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