FIND OUT MORE. Culture 296–297 • The Depression 430 • Economy 302–303 • The Law 310–311
Society and Beliefs^309
WHAT ARE TAX INCENTIVES?
A state can use tax incentives to encourage its citizens to make certain economic
choices. Most people try to avoid paying large amounts of tax, so a state can
actually encourage participation in an activity by lowering or removing the tax on
it. The opposite is true when a state raises taxes. For example, some governments
impose high taxes on cigarettes and alcohol to discourage people from consuming
these products, which are known to create health risks.
DO TAXES MAKE SOCIETIES MORE EQUAL?
Whether taxation can make societies more equal depends on the mix of taxes raised
by the state. Progressive taxes, such as income tax, take more from the rich than the
poor. Others, such as flat rate taxes, take the same amount of money from everyone.
However, this has a worse impact on the poor than the rich who can afford to pay it.
Welfare is the financial assistance that
a state provides to help people in need.
Government welfare support may include
payments to unemployed workers, disabled
people excluded from the workplace, or
pensions to the elderly. Welfare benefits
can also be provided to all citizens in
forms such as public education.A state that possesses its own currency
has a central bank, which prints money.
A central bank tries to regulate the state’s
economy by influencing interest rates.
The aim is to ensure economic stability
and prevent sharp swings between
growth and decline.
Tax is the money that citizens and companies have to pay to the
government, helping the state raise the funds it needs to operate.
A state may impose direct taxes on an individual’s income or
property, or indirect taxes on business trade in goods and services.
HAVE ALL COUNTRIES CREATED A WELFARE STATE?
Every government decides how much welfare to
provide to its citizens. Politicians debate over how
much a person’s welfare is their own responsibility,
or the responsibility of the state. Some developing
countries have little money for welfare, and
the needy must rely on charity for help instead.WHAT IS INTEREST?
Interest is what money costs to borrow. People pay a
price to borrow money – for example, to make a large
consumer purchase – and that price is called interest.
The central bank issues a basic interest rate called the
base rate, which private banking companies follow
when people arrange to borrow money from them.
1 US GOLD BULLION DEPOSITORY, FORT KNOX, KENTUCKY, USA
Different countries have different currencies, or money. One of the tasks of the central bank is to determine
how much currency should be in circulation (in use) at any given time. Until 1971, the value of each US dollar
in circulation was backed up by a dollar’s worth of gold, some of which was stored at Fort Knox.1 PROVIDING FOR THE POOR
In times of economic crisis, larger numbers of people turn to the state for welfare
aid. These unemployed New Yorkers queued for a free Christmas meal during the Great
Depression of the 1930s, a financial slump that began in the USA and spread across the globe.1 TAXING CONSUMERS AT THE PETROL PUMP
If a government sees private transport and car use as bad for society, it
can discourage car use by raising tax on petrol purchases. High petrol
taxes encourage people to buy smaller cars that consume less fuel.TAX
CENTRAL BANK
WELFARE