Public Finance & Taxation

A tax bracket is a range of income taxed at a particular rate within a progressive income-tax system.

The marginal tax rate is the tax rate applied to the next dollar of income earned.

The average tax rate is total taxes paid divided by total income.

A sales tax is a tax on goods and services collected at the point of sale as a percentage of the price.

A VAT is a tax collected at each stage of production on the value added, ultimately paid by the final consumer.

A tax credit directly reduces the amount of tax owed, dollar for dollar.

The Laffer curve shows that tax revenue rises with the tax rate up to a point, then falls as high rates discourage work and investment.

A transfer payment is money the government gives to individuals without receiving a good or service in return.

An entitlement program is a government benefit that everyone who meets set eligibility rules is legally guaranteed to receive.

A tax wedge is the gap a per-unit tax drives between the price buyers pay and the price sellers receive, equal to the tax per unit at the new quantity.

The excess burden of a tax is the deadweight loss it creates beyond the revenue collected, arising because the tax distorts consumption and production decisions.

The benefit principle taxes people according to the public services they use; the ability-to-pay principle taxes them according to their capacity to bear the burden.