Public Resources, Capital Formation, and Taxation Principles

Posted on Nov 25, 2024 in Economy

Unit III

Public Resources (Concept)

Classifications:

1. According to Neumark:
   1. Relationship between public and private economy (Principles)
2. Originating or Derived:
   Reviews originarios/derivados 3 authors
3. Depending on current, capital or financing
4. Depending on whether effective or not effective remedies
5. According to whether ordinary or extraordinary

Public Capital Formation

Public capital formation is divided into 3 stages:

1. Creation of a country: Newly established countries require infrastructure like roads, routes, and pathways to support private commercial and industrial activities. Investment in this phase is substantial.
2. Consolidation: Large-scale investments are no longer needed as the basic structure for private sector activities is in place.
3. Maturity: The private sector has developed and stabilized, leading to demands for higher investments due to insufficient stocks. This stage sees a renewed increase in public capital formation in capital works.

Taxes

Meaning: Taxes are mandatory payments (coercion) levied by the State on the income or savings of individuals, authorized by its power to rule.

Elements: When the State decides to use this resource, it must first determine who will be taxed (taxpayers) and establish the terms and rates (single or variable). Generally, a tax structure is built and approved by lawmakers.

The basic elements of this structure are:

1. Material Object
2. Perpetrator
3. Taxable
4. Taxable Items
5. Taxable Event
6. Tax Base
7. Tax
8. Exemptions
9. Tax Liability

Everything is documented, and authorization is requested before calculations are made to determine if the revenue will be sufficient. This is expressed in a document, analyzed, and if approved by Parliament, it becomes law. After a certain period, the state can start collecting the tax.

Guidelines or Principles of Taxation

1. Neutrality
2. Legality
3. Sufficiency
4. Economic or Minimal Cost
5. Equity: Equity is not as limiting as legality; the rule is important to achieve. It should not be associated with equality. Equal treatment should be given from a tax perspective to individuals or taxpayers who are equal. This does not mean everyone pays the same tax. There are two theories to determine if two taxpayers are equal:
   1. Theory or Criterion of Profit: Two subjects will be on equal terms if they benefit in the exact same way from the goods and services provided by the state. This is difficult to determine in practice.
   2. Theory or Criterion of Ability to Pay: Two subjects will be equal if they have the same ability to pay. Ability to pay is determined by income and standard of living, measured in three concepts and events:
      1. Rentals: There is a direct relationship between income earned in a given period and the standard of living (e.g., tax base gains).
      2. Property or Wealth: Assets used as a source of income are also used to measure the ability to pay (e.g., land tax, vehicle tax).
      3. Consumption: A higher amount of expenditure or consumption implies a higher standard of living and thus a greater ability to pay (e.g., VAT and partially income tax).

Points of Tax Impact (Graph)

Families sell factors and receive income. This can go to market or consumer goods, be saved, or invested. Firms buy assets, receive income, cover purchase costs, and market factors. They can also spend and save. Once tax matters are decided, exemptions, aliquots, etc., are provided.

Rating

Personal: Real: Direct: Indirect: Fixed amount: Proportional amount: Progressive Amount: Decreasing Amount:

Progressive Tax (Sudden Escalation and Smoothed)

• Brusca (Sharp): Taxpayers are divided into classes based on income or assets, with a gradually increasing aliquot for wealthier classes. Default: sharp increase in amounts outstanding.
• Smoother: Income or wealth is divided into different scale degrees, with an increasing aliquot applied. Different subjects pay the same tax on income or assets for each segment of the scale. Default: to achieve adequate overall progression, the marginal rate in the upper reaches should be significantly high, which can encourage evasion.

Economic Effects of Taxes or the Imposition Moments

1. Notice or Advertisement
2. Legal Impact or Percussion
3. Translation
4. Effective Impact
5. Dissemination
6. Removal
7. Depreciation
8. Capitalization

Tax System

A set of taxes that a country uses as a resource at a particular time.

Henry George Single Tax: A proposal to tax only land (circa 1200). George argued that the increased value of land does not come from the efforts of people, so it should belong to the state, which should charge a single tax on land. The problem was that landowners would be the only ones funding the needs of everyone else, which was considered unfair.

He never succeeded in implementing a flat tax system in any country because:

1. No tax is perfect in terms of burden sharing.
2. The ability to pay is manifested in different ways. Taxes should be on income, wealth, or consumption, but this is difficult to control.
3. No single system would have sufficient productivity to meet the financial needs of the state.

Designing a Tax System: Two positions

1. It is achieved through the work of technical specialists using mathematical formulas.
2. It arises from historical processes rather than a planned system.

Evolution of Tax Systems (Hinrichs)

As economic structures evolved, so did tax systems.

Tax Pressure

The impact of taxes on individual incomes. It measures the sacrifice individuals make due to the drawdown of income by the State using its power of coercion.

Types

• Individual Tax Pressure: Measures the sacrifice every industry makes due to the drawdown of tax. It is the relationship between the amount of taxes paid by one person and their total income.
• Sector Tax Pressure: Measures the sacrifice of a certain industry. It is the relationship between the amount of taxes in a given sector of the economy and the total sector income.
• General or Total Tax Burden: Encompasses all taxes and allows for a better overall measurement.

The first two are very difficult to determine due to the existence of indirect taxes.

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The tax burden can be used to control the sacrifice because the population can be compared with previous years or other countries. It should never be used to measure the efficiency with which the state uses these resources.