Revenue Administration and Tax Mix Essay

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limiting factor in determining the size of a budget in the public sector is the capacity to tax or generate revenue. To compute fiscal capacity, a representative tax system should assess the level of personal income, the value of retail sales, and the value of property. However, there are other areas that governments should focus on when striving to ensure and maintain revenue generation. Diversifying a revenue portfolio is paramount, especially when the economy takes a downturn. The following essay evaluates whether evaluate whether, Swobodaville, a hypothetical city has an adequately diverse tax mix, and recommends possible actions to improve its tax base.

The city Swobodaville is compared to 'Comparator'. Swobodaville has a significantly higher personal income than comparators, although its corporate income is slightly lower. For some unknown reason, the sales tax that Swobodaville has to pay is significantly lower than comparators as is its property tax. On the other hand, Swobodaville pays higher tax on other items.

Before levying tax, what one also needs to know is the impact that increasing tax on a particular factor (such as property) will have on the individuals in the city. One also needs to know the efficiency costs of taxation and the efficiency-equity trade-off.

If the government finds that the group of people will change their behavior drastically in order to avoid increase of tax in a certain area, the government will avoid raising tax in that area (Froyen, 1998; Gordon, 1998).

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Changes in one market always have impact on other markets, and so the government to test should conduct a single-market analysis otherwise called partial equilibrium analysis to test possible impact on other fields. Increasing the burden sales tax, for instance, may cause citizens to buy from other states or foreign companies (Scissors, 2002). Given that the country is currently experiencing a harsh economic situation and that its corporations seem to be doing less well than those in other cities, the government may want to encourage entrepreneurial activity and not discourage it by boosting the sales tax on its products.

The government should also compute the efficiency loss to the population as a whole that results from price increase in a certain area. Marginal social benefits of consuming a certain good should be equal to or greater than the costs of producing that good. Secondly, no other party should be worse off by consumers consuming that good. The citizens of the city, therefore, may be willing to pay extra on certain commodities for it is still worth their while to buy it, i.e. consuimers are willing to pay extra for consumpotion since maarginak benefits of consumption are still equal or greater than marginal costs of production.. Furthermore, there….....

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