Key Insights into Taxation: History, Principles, and Modern Trends

Posted on Jan 26, 2025 in Economy

Taxation Fundamentals

  • Concerning the window tax, please choose the right answer: The tax base was not well specified.
  • Regarding the tax-to-GDP ratio for OECD countries, which sentence is true? High-income countries have, in general, a higher ratio of tax to GDP, and within them, those countries with a deeper welfare state tend to have higher ratios, like EU countries.
  • Choose the right question: Nordic countries (Sweden, Denmark) tend to have a higher proportion of Social Security Contributions (SSC), while southern countries (Spain, Italy) tend to have a lower level of SSC.

Historical Context of Taxation

  • Referring to the genesis of taxation, choose the right answer: Although taxes existed from ancient times, tax revenues were very small until the 20th century.
  • Regarding the origins of the Tea Party, choose the right answer: The fight against British taxes is an important factor in explaining the American Revolutionary War (American War of Independence).
  • Regarding the American independence war and its relationship with taxation, choose the WRONG answer: North American colonies were radically against any kind of taxation.
  • Recall the Republican Roman taxation system and choose the right answer: The Tributum was linked to wealth conscription.
  • Remember the different modern phases of taxation, and choose the right answer: The first income tax was established by William Pitt the Younger in 1799 in the UK.
  • Choose the right answer: Taxes are probably linked to the apparition of human writing.
  • When do taxes appear? Consumption-based taxes were widely used since ancient times: Tax on consumption in Egypt, and in Rome (slave sales).
  • Choose the right answer: The 1st and 2nd World Wars were the main drivers for the apparition of the fiscal state.

Modern Taxation and Economic Principles

  • Concerning the OECD tax structure, choose the WRONG answer: Corporate Income Tax (CIT) tends to have a share in total taxation of 40% to 50%.
  • Concerning the current trends of taxation, choose the WRONG answer: Within the European Union, Spain is one of the countries with the highest tax-to-GDP ratio.
  • Choose the right answer: The tax base is the amount to which we apply the tax rates.
  • Concerning profit-shifting behaviors of multinational companies, please choose the right answer: There are three main forms by which multinational firms can shift profits from low-tax to high-tax jurisdictions: transfer pricing, the use of debt, and the use of intangible assets.
  • Regarding the arguments that lead to the apparition of modern taxation, choose the right answer: Public opinion was shocked by the consequences of the mass mobilization for WWII, and compensatory arguments – although existing from ancient times – were widely used to justify increased top income taxes.
  • Choose the right answer: The welfare state and social expenditure is one of the reasons that justify current levels of taxation in developed countries. Among them, EU countries tend to have the highest tax-to-GDP ratios.
  • Concerning modern taxation, choose the WRONG answer: Before modern taxation, “horizontal equity” was a guiding tax principle of the Old Regime.
  • Concerning the current structure of modern taxation systems, choose the right answer: Personal income tax is one of the most important tax sources.
  • Concerning the substitution effect and income effect, choose the right answer: The substitution effect is related to changes in relative prices.
  • Choose the right answer concerning the Republican Roman Republic taxation system: One problem was that by the end of the Republic, both principals and agents were pocketing an unauthorized share of the tax revenues.
  • Imagine an Edgeworth box representing the equilibrium in consumption of the figure below, and choose the right answer: The movement from E′ to E is a Pareto improvement.
  • The substitution effect of a tax depends on: The change in relative prices.
  • A Pareto equilibrium is defined by: Equilibrium in production, equilibrium in consumption, and the product mix.
  • About tax incidence: If prices were constant, statutory incidence and economic incidence would be the same.
  • The deadweight loss: It measures the inefficiency of taxation by measuring the amount of consumer and producer surplus society loses by imposing a tax, that is, surplus that is lost and not recaptured in the form of tax revenues.
  • The income effect of a tax is defined by: The reduction in disposable income induced by the tax.
  • The Ramsey rule concerns the minimization of the deadweight loss of a tax system while raising a fixed amount of revenue. According to this rule, how should taxes be designed? Taxes should be set across commodities so that the ratio of the marginal deadweight loss to marginal revenue raised is equal across commodities.
  • Imagine an economy composed of two consumers. Concerning the Pareto equilibrium, choose the right answer: None of the above.