- Industry: Economy; Printing & publishing
- Number of terms: 15233
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The risk of damage being done to the health of the financial system as a whole. A constant concern of bank regulators is that the collapse of a single bank could bring down the entire financial system. This is why regulators often organize a rescue when a bank gets into financial difficulties. However, the expectation of such a rescue may create a moral hazard, encouraging banks to behave in ways that increase systemic risk. Another concern of regulators is that the risk management methods used by banks are so similar that they may increase systemic risk by creating a tendency for crowd behavior. In particular, problems in one market may cause banks in general to liquidate positions in other markets, causing a vicious cycle of liquidity being withdrawn from the financial system as everybody rushes for the emergency exit at once. (See capital asset pricing model. )
Industry:Economy
Assets you can touch: buildings, machinery, gold, works of art, and so on. Contrast with intangible assets.
Industry:Economy
Often used to describe a tax on goods produced abroad imposed by the government of the country to which they are exported. Many countries have reduced such tariffs as part of the process of freeing up world trade.
Industry:Economy
Creating financial instruments or transactions that allow the parties involved to exploit loopholes in or differences between their tax exposures, so that all involved pay less tax.
Industry:Economy
Doing everything possible within the law to reduce your tax bill. Learned Hand, an American judge, once said: “There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible … nobody owes any public duty to pay more than the law demands. ” Contrast with tax evasion.
Industry:Economy
The thing or amount to which a tax rate applies. To collect income tax, for example, you need a meaningful definition of income. Definitions of the tax base can vary enormously, over time and among countries, especially when tax breaks are taken into account. As a result, a country with a comparatively high tax rate may not have a high tax burden if it has a more narrowly defined tax base than other countries. In recent years, the political unpopularity of high tax rates has lead many governments to lower rates and at the same time broaden the tax base, often leaving the tax burden unchanged.
Industry:Economy
Total tax paid in a period as a proportion of total income in that period. It can refer to personal, corporate or national income.
Industry:Economy
Low-tax policies pursued by some countries in the hope of attracting international businesses and capital. Economists usually favor competition in any form. But some say that tax competition is often a beggar-thy-neighbor policy, which can reduce another country’s tax base, or force it to change its mix of taxes, or stop it taxing in the way it would like. Economists who favor tax competition often cite a 1956 article by Charles Tiebout (1924–68) entitled "A Pure Theory of Local Expenditures". In it he argued that, faced with a choice of different combinations of tax and government services, taxpayers will choose to locate where they get closest to the mixture they want. Variations in tax rates among different countries are good, because they give taxpayers more choice and thus more chance of being satisfied. This also puts pressure on governments to be efficient. Thus measures to harmonize taxes are a bad idea. There is at least one big caveat to this theory. Tiebout assumed, crucially, that taxpayers are highly mobile and able to move to wherever their preferred combination of taxes and benefits is on offer. But many taxpayers, including the great majority of workers, are not able to move easily. Tax competition may make it harder to redistribute from rich to poor through the tax system by allowing the rich to move to where taxes are not redistributive.
Industry:Economy
From the point of view of the taxpayer, the way of undertaking an economic activity that results in the lowest (legitimate) tax bill.
Industry:Economy
Paying less tax than you are legally obliged to. Contrast with tax avoidance. There may be a thin line between the two, but as Denis Healey, a former British chancellor, once put it, “The difference between tax avoidance and tax evasion is the thickness of a prison wall. ”
Industry:Economy
