ce public finance1 public finance hksar ce public finance2 public finance what is public finance?...
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CE Public Finance 2
Public Finance
What is public finance?
Public finance means how the government raises funds and spends the money on various kinds of services for the economy.
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So public finance is concerned with
The revenue and expenditure of the government
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The size of the public sector is measured by the
amount of public expenditure ( 100% )
GDP
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Public expenditure as % of GDP of the HKSAR
1997-98 1998-99 1999-2000 2000-01 2001-02
17.7% 21.2% 22.0% 21.1% 21.6%
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According to how the tax payment changes with income, taxes can be classified into:
__________, ____________ and__________ taxes
Classification of taxes
direct indirect
progressive proportionalregressive
According to the party who bears the tax burden, taxes can be classified into:
________ taxes and ________ taxes
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Direct tax
• is a tax on income or wealth.
• the tax incidence or burden CANNOT be shifted.
• the tax rate is either progressive or proportional
• Examples in Hong Kong
• salaries tax• profit tax• property tax• estate duty• interest tax ?• dividend tax?
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Indirect tax • is a tax on goods and
services• the tax incidence or
burden CAN be shifted ( usually to the consumers, depending on the elasticity of demand and supply )
• the tax rate is regressive
• Examples in H.K.• cigarettes tax; stamp
duty; general rates; vehicle import tax; airport departure tax; tax on alcoholic liquor; hotel accommodation tax; entertainment tax; betting tax and etc.
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Types Direct tax Indirect tax
Profits tax
Estate duty
Stamp duties
Betting duties
Property tax
Salaries tax
Quiz 1
Classify the above Hong Kong taxes into direct and indirect taxes.
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rogressive tax:
Tax payment takes ____________________ of taxable income as income increases.
roportional tax:
Tax payment takes ____________________ of taxable income as income increases.
egressive tax:
Tax payment takes ____________________ of taxable income as income increases.
Progressive, proportional and regressive taxes
an increasing percentage
the same percentage
a decreasing percentage
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Progressive, proportional and regressive taxes
Fill in the blanks of average tax rate !
A, B and C are three types of tax:
Taxable income $150,000 $200,000
Tax payment $15,000 $15,000A
Average tax rate
Tax payment $10,000 $15,000B
Average tax rate
Tax payment $12,000 $16,000C
Average tax rate
10% 7.5%
6.7% 7.5%
8% 8%
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Progressive, proportional and regressive taxes
Which type of tax is a progressive tax?
A, B and C are three types of tax:
Taxable income $150,000 $200,000
Tax payment $15,000 $15,000A
Average tax rate
Tax payment $10,000 $15,000B
Average tax rate
Tax payment $12,000 $16,000C
Average tax rate
10% 7.5%
6.7% 7.5%
8% 8%
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Progressive, proportional and regressive taxes
Which type of tax is a regressive tax?
A, B and C are three types of tax:
Taxable income $150,000 $200,000
Tax payment $15,000 $15,000A
Average tax rate
Tax payment $10,000 $15,000B
Average tax rate
Tax payment $12,000 $16,000C
Average tax rate
10% 7.5%
6.7% 7.5%
8% 8%
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Progressive, proportional and regressive taxesA, B and C are three types of tax:
Taxable income $150,000 $200,000
Tax payment $15,000 $15,000A
Average tax rate
Tax payment $10,000 $15,000B
Average tax rate
Tax payment $12,000 $16,000C
Average tax rate
10% 7.5%
6.7% 7.5%
8% 8%
Which type of tax is a proportional tax?
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Quiz 2
Suppose the government levies a tax of $10 on all passengers who depart HK by sea. What type of tax ( progressive / proportional / regressive ) is it?
It is a _________ tax. Since all passengers pay the same amount of tax, tax payment takes a _______ proportion of income for the higher income group.
regressive
smaller
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Quiz 3
When the tax payment increases as the income increases, is it a progressive tax ?
____. No
A tax is progressive if the tax payments takes an increasing percentage of taxable income as income increases.
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Quiz 3
When the tax payment increases as the income increases, is it a progressive tax ?
e.g.
Taxableincome
Taxpayment
Averagetax rate
100,000 10,000
150,000 12,00010%8%
Fill in the average tax rates !
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Quiz 3
When the tax payment increases as the income increases, is it a progressive tax ?
e.g.
Taxableincome
Taxpayment
Averagetax rate
100,000 10,000
150,000 12,000
The tax payment increases as the income increases, but it is a _________ tax.regressive
10%8%