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.