7/29/2019 Public finance glossary

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Short Notes (Public Finance)

Jamal Hossain Shuvo Page 1

Capital gain tax: A capital gains tax is a tax on capital gains the profit realized on the sale of a non-inventory asset that

was purchased at a cost amount that lower than the amount realized on the sale.

Expenditure tax: It is a taxation plan that replaces the income tax. Instead of applying as taxed based on the income

earned, tax is allocated based on the rate of spending. This is different from the sales tax, which is applied at the time the

goods or service are provided and is considered a consumption tax.

VAT: VAT is an indirect tax which is imposed on goods and services at each stage of production, starting from raw

materials to final product.

Direct tax: Direct taxes are those taxes which are paid entirely by those persons on whom they are imposed.

Proportional tax: It is a type of tax in which whatever the size of income the rate of taxes remain constant.

Progressive tax: It is a type of tax in which the rate of taxation increases as the taxable income increase.

Regressive tax: Its burden falls more heavily on the poor than the rich since the tax rate decreases as the tax base

increases.

Digressive tax: A tax may be slowly progressive up to a certain limit, after that it may be charged at a flat rate.

Pareto optimum: A Pareto optimum is said to exist when recourses are allocated in such a way that no individual can be

made better off without making another worse off and in the production no commodity is increased without reducing the

production of another.

Social optimum: A social optimum is said to exist if the allocation of resources not only represent a pareto optimum, but

also represent the highest level of attainable social welfare given the constraints of resources endowments technology

tastes attitudes of the society toward income, distribution and so forth.

Public goods: It is an item whose consumption is not decided by the individual consumer but by the society as a wholeand which is financed by taxation.

Pure public goods: It is an Economic concept of goods or services that provides non-excludable and non-rival benefit to

all people in the society.

Externalities: Externality is a cost or benefit from production or consumption activities that affect people who are not

part of the original activity.

CoaseTheorem: The Coase theorem states that where there is a conflict of property rights, the involved parties canbargain or negotiate terms that are more beneficial to both parties than the outcome of any assigned property rights. The

theorem also asserts that in order for this to occur, bargaining must be costless in a competitive market.

Pigovian taxes: A special tax that is often levied on companies that pollute the environment or create excess social costs,

called negative externalities, through business practices. In a true market economy, a Pigovian tax is the most efficient and

effective way to correct negative externalities.

Negative externalities: A negative externality (also called "external cost" or "external diseconomy") is an action of a

product on consumers that imposes a negative side effect on a third party; it is "social cost"

7/29/2019 Public finance glossary

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Short Notes (Public Finance)

Jamal Hossain Shuvo Page 2

Pecuniary externalities: Situation where the input prices of one producer are affected favorable or unfavorable by the

operations of the other producers.

Technological externalities:Economic situation where the production functions of one firm is favorably or unfavorably

affected by the production function of other firms.

Spillover effect: A secondary effect that follows from a primary effect, and may be far removed in time or place from the

event that caused the primary effect. Spillover effects are externalities of economic activity or processes that affect those

who are not directly involved.

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