A tax is a charge that is paid by a person, firm or other legal entity to a government in order to fund public services.
Taxes are usually collected based on economic factors such as income levels or consumption habits. Some taxes are levied based on behaviour such as taxes on alcohol, smoking or pollution. These taxes are often used to encourage or discourage certain behaviour like employing air pollution control devices.
Taxes come in a variety of different ways and apply to different areas:
- Excise tax- A tax levied on specific goods or services.
- Income tax- A tax levied on the amount of income a person generates per annum.
- Pigovian tax- A tax levied on activities in the market that cause negative externalities such as a carbon tax.
- Sales tax- A tax levied based on ones consumption. This tax is levied when a good or service is purchased.
- Value added tax- A value added tax or VAT is a consumption tax similar to a sales tax. A VAT is dependent on the difference between the price that a seller paid for a good and the resale price that a consumer buys the good or service for.
- Property tax- A tax levied on the value of ones property.
- Tariff- A tax levied on imported goods.
- ↑ J.Black, N. Hashimzade, and G. Myles. (2009) "Tax." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3070?rskey=Iou2Cx&result=1, 2009 [Aug 8, 2016]
- ↑ Investopedia. "Taxes." [Online], Available: http://www.investopedia.com/terms/t/taxes.asp[Aug 13, 2016].
- ↑ A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 90.