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4135:
Taxation
Taxation: An Introduction
(Public Finance)
Slide 1-2
Issues to be discussed:
Public Finance and the Type of Economy Public Finance and Tax as a Source of Public Revenue Other Sources of Public Revenue vs. Taxation Public Finance vs. Private Finance Importance of Public Finance
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Slide 1-5
Printing Currency: Govt. is the only authority that can print currency as a legal tender to finance its activities. But printing currency for additional financing is often called as the debasement of the currency (or inflation tax), because it will reduce the purchasing power of the currency and create inflation. Charging for Public Goods: Govt. may charge for the goods and services it provides. This is quite straightforward where the govt. operates like a commercial business. However, where nonrivalry and non-excludability exist, it would be very difficult, or even impossible, or very costly if possible, to charge individuals directly on the basis of the use of many govt. services. Borrowing: Govt. may raise money by borrowing. Govt. can borrow either from their own citizens or from overseas. However, public debt (interest and principal) has to be serviced and debt financing, therefore, adds to the future budgetary commitments of the government authorities. Taxation has its limits as well, but they considerably exceed the amounts that can be raised by resorting to other three sources. So while govt. often use all four methods of raising resources, taxation is usually by far the most important source of govt. revenue, because of its characteristics in achieving govt. financial, economic, political and social objectives.
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Expenditure planning first, then Expenditure planning according to raising funds income Taxation, printing currency, charging for public goods, and borrowing Only government has this authority (like tax collection) Current income, past savings and personal borrowing Private sector cannot use coercion to acquire income or resources in a civilized society
Govt. can take non-repayable Private sector cannot take nonloan and can take loan internally repayable loan and cannot take loan or externally internally Very low due to very high credit- Normally depends on creditworthiness and sometimes due to worthiness and collateral and usually use of coercion high
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Market principle guided by economic rationality and hence profit-oriented and follows quid pro quo Private sector can adopt balanced or surplus budget, but no deficit budget, and the budget may be for any period
8. Budget planning
9. Environ-mental Govt. expenditures have specific Private sector expenditures are influence objectives (full employment, economic influenced by the surrounding growth, stabilization etc.) and not environment, standard of living, influenced by the surrounding consumption-habit etc. environment
Slide 1-10
Private Finance
Govt. expenditures do not follow the law of Private sector expenditures do equi-marginal utility, but govt. tries to follow the law of equimaximize the social utility from the govt. marginal utility expenditures May be very long-term due to having Usually short-term and return perpetual entity by the state and return fromfrom investment is expected some projects may be readily available within a specific period Usually kept confidential
12. Publicity of Mandatory disclosure through budget income and exp. announcement and various statistics on account national income accounting 13. Effect of income On the whole society and far-reaching & exp. 14. Provision of insolvency Provision of insolvency is not applicable
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Thank you.