Ch 11
Taxes: compulsory, unrequited payments to government
Substantive tax law: who, what, where, when
Procedural tax law: how tax liability is assessed and collected (central government and regional)
Principles:
- Legality: requires legislative act
- Equality: has to be a reason for amount of taxation
- Balance of powers:
a. Legislative: decides on existence and design of tax law
b. Executive: carries out enforcement
c. Judiciary: settles disputes between taxpayer and government
Three R’s: revenue, redistribution, regulation
Revenue: finance government expenditures
- Small government: low tax revenue and little regulation
- More taxes means more people will avoid taxes aka low revenue
- Deadweight loss: negative impacts on welfare plus cost of tax
Redistribution: to redistribute wealth
- Progressive: higher taxes on wealthier
- Regressive: lower taxes on wealthier
- Proportional: depends on income
- Incidence: on whom tax burden falls
- Direct tax: legal and economic incidence on same person
- Indirect tax: legal and economic incidence on different people
Regulation: government uses tax to steer behavior
Accretion concept: income is net accumulation of taxpayer’s wealth over the year
- Sum of market value of all consumption and change in value of property rights
Source concept: market value of all gains from specific and stable sources of income
Subjective tax liability:
1. On personal income
2. On combined household income
3. Family situation considered
Objective liability:
1. Timing: only when income is realized (received, etc)
2. Taxability: income is taxable unless otherwise specified
3. Reductions: allowances and deductions reduce amount of taxable income
a. Child allowances
b. Minimum personal allowance
c. Business deduction: that taxpayer incurred while carrying out income earning
, activities
d. Personal deduction: charity, medical, etc
Average tax rate: total tax divided by total taxable income
Marginal tax rate: tax rate that applies to an additional euro of taxable income (incentive to not
earn as much)
Global system: tax rate to sum of all items of income
Schedular system: distinction between applicable rates for different items of income
Flat tax system: 1. Single proportional tax rate
2. No or limited deductions
3. Generous basic allowance
Tax credits: taxpayer may claim refund for the amount of credit that reduces tax liability beyond
zero
Taxes on goods:
1. Value Added Tax (VAT): general transaction tax. Collected in portions that relate to the
tax due on the economic value added of each stage in production and distribution process
of goods and services
2. On specific goods and services (alcohol, cigarettes, etc)
3. On use of goods (motor vehicle registration)
Invoice-credit method: taxpayers obliged to charge VAT on each taxable income
- If a taxpayer paid more input VAT than the output VAT charged in a taxable period, he
or she is entitled to a refund from tax authority
Property taxes:
1. Property ownership: all assets and debts of taxpayer = net wealth
2. Property transaction: all inheritance, gifts, etc that are transferred from one owner to
another.
a. Cheaper between first-degree relatives
Ch 12
Kadi case: under European Convention of Human Rights found that he was not informed of all
evidence against him
Taxes: compulsory, unrequited payments to government
Substantive tax law: who, what, where, when
Procedural tax law: how tax liability is assessed and collected (central government and regional)
Principles:
- Legality: requires legislative act
- Equality: has to be a reason for amount of taxation
- Balance of powers:
a. Legislative: decides on existence and design of tax law
b. Executive: carries out enforcement
c. Judiciary: settles disputes between taxpayer and government
Three R’s: revenue, redistribution, regulation
Revenue: finance government expenditures
- Small government: low tax revenue and little regulation
- More taxes means more people will avoid taxes aka low revenue
- Deadweight loss: negative impacts on welfare plus cost of tax
Redistribution: to redistribute wealth
- Progressive: higher taxes on wealthier
- Regressive: lower taxes on wealthier
- Proportional: depends on income
- Incidence: on whom tax burden falls
- Direct tax: legal and economic incidence on same person
- Indirect tax: legal and economic incidence on different people
Regulation: government uses tax to steer behavior
Accretion concept: income is net accumulation of taxpayer’s wealth over the year
- Sum of market value of all consumption and change in value of property rights
Source concept: market value of all gains from specific and stable sources of income
Subjective tax liability:
1. On personal income
2. On combined household income
3. Family situation considered
Objective liability:
1. Timing: only when income is realized (received, etc)
2. Taxability: income is taxable unless otherwise specified
3. Reductions: allowances and deductions reduce amount of taxable income
a. Child allowances
b. Minimum personal allowance
c. Business deduction: that taxpayer incurred while carrying out income earning
, activities
d. Personal deduction: charity, medical, etc
Average tax rate: total tax divided by total taxable income
Marginal tax rate: tax rate that applies to an additional euro of taxable income (incentive to not
earn as much)
Global system: tax rate to sum of all items of income
Schedular system: distinction between applicable rates for different items of income
Flat tax system: 1. Single proportional tax rate
2. No or limited deductions
3. Generous basic allowance
Tax credits: taxpayer may claim refund for the amount of credit that reduces tax liability beyond
zero
Taxes on goods:
1. Value Added Tax (VAT): general transaction tax. Collected in portions that relate to the
tax due on the economic value added of each stage in production and distribution process
of goods and services
2. On specific goods and services (alcohol, cigarettes, etc)
3. On use of goods (motor vehicle registration)
Invoice-credit method: taxpayers obliged to charge VAT on each taxable income
- If a taxpayer paid more input VAT than the output VAT charged in a taxable period, he
or she is entitled to a refund from tax authority
Property taxes:
1. Property ownership: all assets and debts of taxpayer = net wealth
2. Property transaction: all inheritance, gifts, etc that are transferred from one owner to
another.
a. Cheaper between first-degree relatives
Ch 12
Kadi case: under European Convention of Human Rights found that he was not informed of all
evidence against him
