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Macroeconomics 1 – The domestic economy

Taxation

8.1 Purposes of taxation

 To change markets e.g. tax demerit goods and negative
externalities to try to reduce production of both

 To move AD e.g. Higher tax moves AD to the left

 To finance production of public e.g. tax spent on roads, hospitals, defence and
and merit goods to allow education to be free

 To change the distribution of e.g. Progressive direct taxes most affect upper
wealth groups while indirect taxes and regressive
taxes most affect lower income groups.

Illustrations and further practice

Now try TYUs 12 to 17 from Chapter 4

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