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Increasing Indirect Taxes and Reducing Direct Taxes

Question

Discuss whether a government should increase indirect taxes and whether it should reduce direct taxes.

Category:

Taxes and subsidies

Frequently asked question

Preview Answer

🍃Introduction:
- Brief explanation of the purpose of the essay
- Definition of key terms (incentives, market failure, regressive taxes, progressive taxes, inflation, aggregate demand, balance of payments, tax take)

Body Paragraph ➡️1:
- Explanation of why the government should provide incentives to work
- Discussion of how incentives can increase work effort and reduce poverty
- Explanation of how incentives can generate economic growth

Body Paragraph ➡️2:
- Explanation of why the government should raise indirect taxes on demerit goods
- Discussion of how this can help to reduce market failure
- Explanation of how this can improve the health of the country

Body Paragraph ➡️3:
- Explanation of why the government shouldn't rely solely on indirect taxes
- Discussion of how indirect taxes tend to be regressive and worsen inequality/poverty
- Explanation of how both policies may lead to inflation

Body Paragraph ➡️4:
- Explanation of why the government shouldn't rely solely on direct taxes
- Discussion of how individuals may save any cuts in direct tax, minimising the economic impact
- Explanation of how direct tax cuts may worsen the balance of payments

Body Paragraph ➡️5:
- Discussion of the potential consequences of relying solely on indirect or direct taxes
- Explanation of how tax take could fall if indirect taxes are avoided
- 👉Conclusion on the importance of a balanced approach to taxation

👉Conclusion:
- Summary of key points
- Restatement of thesis
- Final thoughts on the role of government in taxation and economic policy

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