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economic impact of taxes

resource allocation, behavior adjustment, productivity and growth

incidence of tax

final burden of productivity predicted by supply and demand

benefit principle of taxation

those who benefit from govt should pay in proportion to amount of benefit (tax built into gas prices, etc)

limitations of benefit theory of taxation

provide greatest benefit to those who can least afford it

ability to pay principle

taxed accd to ability to pay regardless of benefit (ind. income tax)

proportional tax

same % - flat


increase % on increased income


increase % on lower income (sales tax)

largest source of state revenue?

intergovernmental revenues, then sales tax

largest souce of local revenue

intergovernmental revenues, then property tax

2 types of government spending

expenditures on goods and services - most are public goods and 2. transfer payments (like grant in aid - neither goods nor services)

Federal budget - largest expenditure

1. social security 2. defense 3. income security

how debt effects economy

1. distribution of income across society 2. transfer purchases power from private to public sector 3. reduce incentive to work, save money, invest

commosity money

has alternative use as good or commodity (teabrick)

fiat money

money by govt decree

money sytem in colonies

some fiat (wampum), some commodity

money sytem today

inconvertible fiat monetary standard (can't be converted into gold or silver by citizens)

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