AEC 402: Public Finance andFiscal PolicyLecture Series 2 : AEC 402: Public Finance andFiscal PolicyLecture Series 2 Kobiero Johnson Opiyo
Roadmap : Roadmap Taxation Points
Types of Taxes
The tax structure
Classification of taxes
Equivalence between taxes
Tax incidence
Tax burden
Evaluation of a good tax system
Slide 3 : Points of Tax Impact in Circular Flow Households Firms Capital Markets Factor Markets Market for
consumer
goods Market for
capital
goods 1 H/H income 8 Wages 10 Dividends 9 Retained
earnings Consumption H/H Savings 11 Investment 2 3 4 5 6 7 Profits Payroll Depreciation Net
earnings
Taxation Points : Taxation Points The taxation points are:
House income
Consumer expenditure
business receipts from retail sales
Gross business receipts
Business receipts net of depreciation
Pay rolls
Profits
Wage receipts
Retained earnings
dividends
Types of Taxes : Types of Taxes The tax points help us to determine the types of taxes and evaluate their impacts.
Personal income tax
Corporation income tax
Retail income tax
Employer contribution pay roll tax
Employee contribution to the payroll tax
The tax structure : The tax structure The structure can be in the form of:
Expenditure tax
Value added tax
Income tax
Classification of taxes : Classification of taxes Various taxes may be classified according to where they are imposed:
They may be imposed on product or in the factor market
They may be imposed on sellers or the buyers side of the market
They may be imposed on households or firms
They may be imposed on uses or sources side of the tax payers account
Equivalence between taxes : Equivalence between taxes There are certain pair of taxes which may look different but which are in fact equivalent.
Assignment
Using the tax points in the diagram, identify the pair of taxes that are equivalent and classify them citing examples from Kenyan economy.
Which taxes are potential for reforms now in Kenya and why?