Activity 2

Describe the effect of taxation on income, indirect tax, inflation.

1. Taxation on income
- The effect of taxation on income it reduce the disposable income of tax payers. This will
reduce their expenditure on necessities that must be consumed in order to improve
efficiency. As efficiency suffers, so does one’s ability to work. This has a negative impact
on saving and investment. This , however, occurs in the case of poor people
2. Indirect tax on income
- The Raising indirect taxes promotes long-term capital accumulation. Reduced income
taxation in favor of higher value-added taxation increases the tax burden on those with
lower and middle-incomes. Raising indirect taxes curbs the overall demand for goods
and services.
3. Inflation on income
- The rate of change in prices is referred to as inflation. Inflationary pressures mean that
you must pay more for the same goods and services. This can help you in the form of
income inflation or asset inflation, such as in real estate or stocks, if you own the assets
before prices rise; however, if your income does not keep pace with inflation, your
purchasing power declines. Inflation raises the price of goods and services over time.
Inflationary pressures are detrimental to the economy when they reach critical levels.