DIFFERENCE BETWEEN TAXATION AND INTEREST RATES

indirect taxes on spending

VAT, taxes on pollution, tobacco and alcohol.

demand

affect of interest rates on this depends on the product being sold. Products that require borrowing are more sensitive to changes

profits

businesses are taxed on this

business rate tax

businesses pay this, based on the value of their premises. This rate is the same nationally, however premises prices typically higher in the south, os southern businesses tend to pay more, reducing their competitiveness.

raising taxes

doing this reduces spending in the economy, cutting taxes increases it

changes of tax rate

effects of this depends on income elasticity of good/service. rises in income tax hit luxury goods harder than staple goods.

subsidies

financial assistants

high tax rates

for businesses, this means that their net profits are reduced. this discourages individuals from spending, and businesses from expanding, increases income tax, reduces spending power, cuts demand, lowers economic activity.

disposable income

high tax rates affects this for individuals - therefore they spend less, which is bad for businesses as it affects their revenue

indirect tax

increases in VAT causes inflation and higher prices, decreasing consumer spending, prices have to fall in order to meet drop in demand, deflation

direct taxes

income tax and corporation tax are labelled as this.

income

individuals taxed on their personal figure of this

low interest rates

leads to decrease in cost of borrowing for businesses -more disposable income -less revenue for saving -demand increases

high interest rates

leads to increase in cost of borrowing -consumers have less money to spend -people with existing borrowing will have less disposable income -market demand decreases -people may save more, so take advantage of savings, reducing demand

corporation tax

paid by limited companies

income tax

paid by sole traders and partnerships

rise business tax

reduces economic output

decisions

tax rates affect's this for businesses, with businesses wanting to minimise costs

taxation rates

these affect economic activity

interest rates

these determine the cost of borrowing, and the return on savings. It is the fee paid by borrowing, calculates as % of amount borrowed.

government policies

these influence the economy, in attempt to keep the economy controlled - through fiscal policy and monetary policy. Taxation major part of fiscal policy.

fiscal policy

this changes taxes and spending, setting tax rates and the amount of government spending

low tax rates

this encourages people to spend, so businesses make higher profits. this means there is more profit for businesses, encouraging business activity like expansion and start ups

expansion

this is encourages when taxes are reduced and businesses are given subsidies

rise income tax

this reduces consumer spending

changes in rate

when this happens significantly, businesses will change strategy to diversify away from products requiring borrowing into cheaper products.