Sources of Government

Funds

T A X

Interest in Deposits

BSP and Commercial Banks

GrantsForeign Government and Private

Foundation

Sold Government

Assets

Why is there TAX?

Protection

Welfare and Well-Being

LAWSFormulate, Implements and

Interpret

Concepts on TAXATION

Benefits Principle

Ability to Pay Principle

Kinds of TAXAbility to Pay

Inheritance Tax

Income Tax

How TAX is paid

Direct Tax

Indirect Tax

Progressiveness of Taxes

TAX BURDEN

IMPACT

INCIDENCE

MoreKinds of TAX

TAX BURDENS

Regressive

Proportional Taxation

Progressive

FISCAL POLICY – THE RAPPERS

Althea Rendal

Topics Measuring Income Distribution Equality Uses of Government Funds Income Determination and Government New Equilibrium New Multiplier Automatic Stabilizer Rigidity in Government Spending

Measuring Income Distribution Equality

Lorenz Curve Shows what percentage of total income

goes to the lowest 10% income class, the next decile and so on.

Gini Index (Distribution of Family Income)

Philippines 45.8 (2006) 

46.6 (2003) Singapore 47.8 (2009) 

48.1 (2008) United States 45 (2007) 

40.8 (1997) China 41.5 (2007) 

40 (2001

Germany 27 (2006) 

30 (1994) Hungary 24.7 (2009) 

24.4 (1998) Namibia 70.7 (2003) Source: www.cia.gov

The World Factbook,

Use of Government Funds Economic Services

Agricultural, trade and industry, power and energy, transport and communication sectors

Social Services Education and Health Services

Defense National Security

General Public Services Government branches, departments, agencies

Interest Payments

Income Determination with Government

New Equilibrium (1) Y = C + I + G

where : I and G are autonomous inflows (2) C = b + c Y

where: Yd = disposable income and (3) Yd = Y – T

Taxes depend on the level of income, so the tax function very similar to the savings function

(4) T= s + tY Where T= taxes s = the level of taxes if y=0 t = Marginal Propensity to Tax (MPT)

Ex. The change in the level of taxes corresponding to a change in the level of income, or change in T/ change in Y

Substituting, we get:

(5) Y = b + c (Y-T) + I + G

(6) Y = b + C [Y – (s + tY)] + I + G

New Equilibrium with Govt and Taxes

(7) Y = 1 . X (b – cs + I + G)1 – c + ct

Example…

New Multiplier

Multiplier (w/ G, T) = 1 .1- c + ct

Rigidity in Government Spending Govt MUST Cut Down Spending But WHERE? There is always a TRADE OFF. Address Debts High Interest Expense Minimize Corruption Strong Political Will

Relative

In TaxationFlexibility

OF FISCALDEFICITS

DEMAND and Output

1

2

3

WAYS

DOMESTIC MONEY MARKET

BORROWING FROM THE BSP

BORROWING FROM THE DOMESTIC MONEY MARKET

• Normal Route• Issuing Treasury Bills and Treasury Notes or

other debt instruments• Crowding effect

BORROWING FROM ABROAD

FISCAL POLICY AND GROWTH

TAXATION AND GROWTH

Tax effort Tax Reform

TAX EVASION

- not paying taxes correctly

- illegally

Government

fund = Therefore..

Inventing moretypes of taxes

and

Increasingtax rates

More efficient wayof tax collection

Government spending and growth

HOW TO SPEND TAX MONEY BETTER

• Public investments– Allow markets to widen– allows the operation of the economies of scale

• Education - investment in

human capital

• Bloated bureaucracy-(2008) 36% of national government spending= salaries and benefits of government personnel: Attrition Law of 1992-some are underpaid : Salary Standardization Law

• Interest payments-Lessen the amount available for necessary services/infrastructures

THEREFORE.. and

INCREASING PRODUCTIVITY

Shift in aggregate supply to the right

=growth with minimal inflation

EFFICIENT RESOURCE ALLOCATION

• tax on undesirable activities • tax exemptions and subsidies to activities important

for continued development• Agriculture• Promote achievement of economies of scale • provide adequate educational facilities