2. Sources of Government Funds

3. T A X

4. Interest in Deposits BSP and Commercial Banks

5. Grants Foreign Government and Private Foundation

6. Sold Government Assets

7. Why is there TAX?

8. Protection

9. Welfare and Well-Being

10. LAWS Formulate, Implements and Interpret

11. Concepts on TAXATION

12. Benefits Principle

13. Ability to Pay Principle

14. Kinds of TAX Ability to Pay

15. Inheritance Tax

16. Income Tax

17. How TAX is paid

18. Direct Tax

19. Indirect Tax

20. Progressiveness of Taxes TAX BURDEN

21. IMPACT

22. INCIDENCE

23. More Kinds of TAX TAX BURDENS

24. Regressive

25. Proportional Taxation

26. Progressive

27. FISCAL POLICY – THE RAPPERS Althea Rendal

28. Topics  Measuring Income Distribution Equality  Uses of Government Funds  Income Determination and Government  New Equilibrium  New Multiplier  Automatic Stabilizer  Rigidity in Government Spending

29. Measuring Income Distribution Equality

30. Lorenz Curve  Shows what percentage of total income goes to the lowest 10% income class, the next decile and so on.

31. Gini Index (Distribution of Family Income)  Philippines  45.8 (2006) 46.6 (2003)  Singapore  47.8 (2009) 48.1 (2008)  United States  45 (2007) 40.8 (1997)  China  41.5 (2007) 40 (2001  Germany  27 (2006) 30 (1994)  Hungary  24.7 (2009) 24.4 (1998)  Namibia  70.7 (2003)  Source: www.cia.gov The World Factbook,

32. Use of Government Funds  Economic Services  Agricultural, trade and industry, power and energy, transport and communication sectors  Social Services  Education and Health Services  Defense  National Security  General Public Services  Government branches, departments, agencies  Interest Payments

33. Income Determination with Government

34. New Equilibrium  (1) Y = C + I + G  where : I and G are autonomous inflows  (2) C = b + c Y  where: Yd = disposable income and  (3) Yd = Y – T  Taxes depend on the level of income, so the tax function very similar to the savings function

35.  (4) T= s + tY  Where T= taxes  s = the level of taxes if y=0  t = Marginal Propensity to Tax (MPT) Ex. The change in the level of taxes corresponding to a change in the level of income, or change in T/ change in Y

36.  Substituting, we get:  (5) Y = b + c (Y-T) + I + G  (6) Y = b + C [Y – (s + tY)] + I + G

37. New Equilibrium with Govt and Taxes  (7) Y = 1. X (b – cs + I + G) 1 – c + ct

38.  Example…

39. New Multiplier  Multiplier (w/ G, T) = 1. 1- c + ct

40. Rigidity in Government Spending  Govt MUST Cut Down Spending  But WHERE?  There is always a TRADE OFF.  Address Debts  High Interest Expense  Minimize Corruption  Strong Political Will

42. Relative In Taxation Flexibility

43. OF FISCAL DEFICITS DEMAND and Output

44. 1 2 3 WAYS DOMESTIC MONEY MARKET

45. BORROWING FROM THE BSP

46. BORROWING FROM THE DOMESTIC MONEY MARKET Normal Route Issuing Treasury Bills and Treasury Notes or other debt instruments Crowding effect

47. BORROWING FROM ABROAD

48. FISCAL POLICY AND GROWTH

49. TAXATION AND GROWTH Tax effort Tax Reform

50. TAX EVASION - not paying taxes correctly - illegally

51. Government fund = Therefore..

52. Inventing more types of taxes and Increasing tax rates More efficient way of tax collection

53. Government spending and growth

54. HOW TO SPEND TAX MONEY BETTER Public investments – Allow markets to widen – allows the operation of the economies of scale Education - investment in human capital

55. Bloated bureaucracy -(2008) 36% of national government spending= salaries and benefits of government personnel: Attrition Law of 1992 -some are underpaid : Salary Standardization Law

56. Interest payments -Lessen the amount available for necessary services/infrastructures THEREFORE.. and

57. INCREASING PRODUCTIVITY Shift in aggregate supply to the right = growth with minimal inflation

58. EFFICIENT RESOURCE ALLOCATION tax on undesirable activities tax exemptions and subsidies to activities important for continued development Agriculture Promote achievement of economies of scale provide adequate educational facilities