गुरुवार, 14 फ़रवरी 2013

Economic vocabulary start from 'T'


Tangible assets
Assets you can touch: buildings, machinery, gold, works of art, and so on. Contrast with intangible assets.
Tariff
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.
Tax arbitrage
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.
Tax avoidance
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.
Tax base
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.
Tax burden
Total tax paid in a period as a proportion of total income in that period. It can refer to personal, corporate or national income.
Tax competition
Low-tax policies pursued by some countries in the hope of attracting international businesses and capital. Economists usually favour competition in any form. But some say that tax competition is often a beggar-thy-neighbour 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 favour tax competition often cite a 1956 article by Charles tie bout (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 harmonies taxes are a bad idea.
There is at least one big caveat to this theory. Tie bout 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.
Tax efficient
From the point of view of the taxpayer, the way of undertaking an economic activity that results in the lowest (legitimate) tax bill.
Tax evasion
Paying less tax than you are legally obliged to. Contrast with tax avoidance. There may be a thin line between the two, but as denies healey, a former British chancellor, once put it, “the difference between tax avoidance and tax evasion is the thickness of a prison wall.”
Tax haven
A country or designated zone that has low or no taxes, or highly secretive banks, and often a warm climate and sandy beaches, which make it attractive to foreigners bent on tax avoidance or even tax evasion.
Tax incidence
Where a tax really bites. Who ultimately pays a tax is often different from who the taxman collects the tax from, because the cost of the tax can be passed on. for example, by demanding higher wages if income tax rises, workers can transfer some of the tax burden to their employer's customers or shareholders.
Taxation
Prostitution may be the oldest profession, but tax collection was surely not far behind. In its early days, taxation did not always involve handing over money. The ancient Chinese paid with pressed tea, and jivara tribesmen in brazil stumped up shrunken heads. As the price of their citizenship, ancient Greeks and Romans could be called on to serve as soldiers and had to supply their own weapons. The origins of modern taxation can be traced to wealthy subjects paying money to their king in lieu of military service.
The other early source of tax revenue was trade, with tolls and customs duties being collected from travelling merchants. The big advantage of these taxes was that they fell mostly on visitors rather than residents.
Income tax, the biggest source of government funds today in most countries, is a comparatively recent invention, probably because the notion of annual income is itself a modern concept. Governments preferred to tax things that were easy to measure and on which it was thus easy to calculate the liability. This is why early taxes concentrated on tangible items such as land and property, physical goods, commodities and ships, as well as things such as the number of windows or fireplaces in a building.
In the 20th century, particularly the second half, governments around the world took a growing share of their country's national income in tax, mainly to pay for increasingly more expensive defence efforts and for a modern welfare state. Indirect taxation on consumption, such as value-added tax, has become increasingly important as direct taxation on income and wealth has become increasingly unpopular.
But big differences among countries remain. One is the overall level of tax. For example, in United States tax revenue amounts to around one-third of its GDP, whereas in Sweden it is closer to half. Others are the preferred methods of collecting it (direct versus indirect), the rates at which it is levied and the definition of the tax base to which these rates are applied. Countries have different attitudes to progressive and regressive taxation. There are also big differences in the way responsibility for taxation is divided among different levels of government.
Arguably, any tax is a bad tax. But public goods and other government activities have to be paid for somehow, and economists often have strong views on which methods of taxation are more or less efficient. Most economists agree that the best tax is one that has as little impact as possible on people's decisions about whether to undertake a productive economic activity. High rates of tax on labour may discourage people from working, and so result in lower tax revenue than there would be if the tax rate were lower, an idea captured in the Laffer curve. Certainly, the marginal rate of tax may have a bigger effect on incentives than the overall tax burden.
Land tax is regarded as the most efficient by some economists and tax on expenditure by others, as it does all the taking after the wealth creation is done.
Some economists favour a neutral tax system that does not influence the sorts of economic activities that take place. Others favour using tax, and tax breaks, to guide economic activity in ways they favour, such as to minimize pollution and to increase the attractiveness of employing people rather than capital. Some economists argue that the tax system should be characterized by both horizontal equity and vertical equity, because this is fair, and because when the tax system is fair people may find it harder to justify tax avoidance and tax evasion. However, who ultimately pays (the tax incidence) may be different from who is initially charged, if that person can pass it on, say by adding the tax to the price he charges for his output. Taxes on companies, for example, are always paid in the end by humans, be they workers, customers or shareholders.
Technical progress
A crucial ingredient of economic growth. Economists often used to take a certain rate of technological progress for granted, but in new endogenous growth theory they make more effort to measure accurately and better understand what causes differences in the rate of technical change.
Terms of trade
The weighted average of a country's export prices relative to its import prices.
Third way
An economic philosophy espoused by some leftish political leaders in the late 20th century, including Bill Clinton and Tony Blair. According to the rhetoric, it is not capitalism and not socialism, but a third (pragmatic) way. Many have therefore found it rather hard to pin down. It was earlier used to describe Sweden’s economic model.
Tick
The minimum price change possible in a financial marketplace.
Tiger economies
The fast-growing developing economies of Asia, at least before their crisis in the late 1990s.
Time series
Several measurements of a variable taken at regular intervals, such as daily, monthly, quarterly, and so on. They are often used by economists in search of trends that they hope will let them predict future movements in the variable.
Time value of money
The idea that a dollar today is worth more than a dollar in the future, because the dollar in the hand today can earn interest during the time until the future dollar is received.
Tobin, James
A Nobel prize-winning economist, James Tobin (1918-2002) theorized that firms would continue to invest as long as the value of their shares exceeded the replacement cost of their assets. The ratio of the market value of a firm to the net replacement cost of the firm's assets is known as 'Tobin’s q'. If q is greater than 1, then it should pay the firm to expand, as the profit it should expect to make from its assets (reflected in the share price) exceeds the cost of the assets. If q is less than 1, the firm would be better off selling its assets, which are worth more than shareholders currently expect the firm to earn in profit by retaining them.
Tobin also gave his name to the 'Tobin tax', a (so far unimplemented) proposal to reduce speculative cross-border flows of capital by levying a small tax on foreign exchange transactions.
Total return
The sum of all the different benefits from investing in an asset, including income paid to the investor and any change in the market value of the asset. The total return is often expressed as a percentage of the amount invested.
Trade area
In a globalizing economy, it is perhaps surprising that countries increasingly trade with their nearest neighbours. One explanation is geography: as countries have lowered their tariff barriers, the relatively greater importance of transport costs makes proximity matter more. According to new trade theory, this also produces gains from economies of scale. But another reason for the fast growth in trade among nearby countries may be less benign. The proliferation of regional trade agreements may be causing neighbours to trade with each other when it would be more efficient for them to export to and import from afar.
In the past 50 years more than 150 regional trade agreements have been notified to the general agreement on tariffs and trade (GATT) or the world trade organization (WTO), most of which are still in force. Roughly half of these, including some revisions of previous deals, have been set up since 1990. The best-known are the European Union, the North American free-trade agreement (NAFTA) and Mercosur in South America. There are dozens of other examples.
Economists have generally been unenthusiastic about regionalism, for two reasons. First, they worry that preferential tariffs will cause trade to flow in inefficient ways, a process known as trade diversion. In a perfect world, trade patterns should be determined by comparative advantage: the comparative cost of making different goods yourself as opposed to buying them from various countries. If the United States imports Mexican televisions merely because the Mexican goods are tariff-free, even if Malaysia has a comparative advantage in television manufacturing, the main benefit of trade will be lost.
The second concern is that regionalism will impede efforts to liberalise trade throughout the world. One prominent critic, Jagdish Bhagwati, an economist at Columbia University in New York, has famously said that regional trade areas are 'stumbling blocks' rather than 'building blocks' in the freeing of global trade. There is no clear-cut theoretical answer to the question of whether regional trade agreements are good or bad, and the empirical findings are hotly disputed. In general, though, it seems likely that it is better to have regional groups that are open to the rest of the world than groups that are closed.
Trade deficit/surplus
An excess of imports over exports is a trade deficit. An excess of exports over imports is a trade surplus.
Trade-weighted exchange rate
A country’s exchange rate with the currencies of its trading partners weighted by the amount of trade done by the country in each currency.
Tragedy of the commons
A 19th-century amateur mathematician, William Forster Lloyd, modeled the fate of a common pasture shared among rational, utility-maximizing herdsmen. He showed that as the population increased the pasture would inevitably be destroyed. This tragedy may be the fate of all sorts of common resources, because no individual, firm or group has meaningful property rights that would make them think twice about using so much of it that it is destroyed.
Once a resource is being used at a rate near its sustainable capacity, any additional use will reduce its value to its current users. Thus they will increase their usage to maintain the value of the resource to them, resulting in a further deterioration in its value, and so on, until no value remains. Contemporary examples include overfishing and the polluting of the atmosphere. Transaction costs
The costs incurred during the process of buying or selling, on top of the PRICE of whatever is changing hands. If these costs can be reduced, the PRICE MECHANISM will operate more efficiently.
Transfer pricing
The prices assumed, for the purposes of calculating tax liability, to have been charged by one unit of a multinational company when selling to another (foreign) unit of the same firm. Firms spend a fortune on advisers to help them set their transfer prices so that they minimise their total tax bill. For instance, by charging low transfer prices from a unit based in a high-tax country that is selling to a unit in a low-tax country, a firm can record a low profit in the first country and a high profit in the second. In theory, however, transfer prices are supposed to be set according to the arm's-length principle: that they should be the same as would be charged if the sale was to a business unconnected in any way to the selling firm. But when there is no genuinely independent market with which to compare transfer prices, what an arm's length price would be can be a matter of great debate and an opportunity for firms that want to lower their tax bill.
Transfers
Payments that are made without any good or service being received in return. Much public spending goes on transfers, such as pensions and welfare benefits. Private-sector transfers include charitable donations and prizes to lottery winners.
Transition economies
Former communist economies that, with varying degrees of enthusiasm, have embraced capitalism.
Transmission mechanism
The process by which changes in the money supply affect the level of total demand in an economy.
Transparency
A buzz word for the idea that the more information is disclosed about an economic activity the better. Many regulators, private lenders, politicians and economists reckoned that the Asian economic crisis of the late 1990s would not have been so severe, or even have happened, had Asian governments, banks and other companies made available more and better data about their financial condition. Likewise, the collapse of Enron provoked demands for greater transparency, to help improve corporate governance in the united states and other industrialised countries. Some economists reckon that transparency is one of the most effective methods of regulation. Rather than risk regulatory capture, why not simply maximise disclosure and leave it to the market to decide whether what the information reveals is acceptable?
Treasury bills
A form of short-term government debt. Treasury bills usually mature after three months. They are used for managing fluctuations in the government’s short-run cash needs. Most government borrowing takes the form of longer-term bonds.
Trough
The transition point between economic recession and recovery.
Trust
One of the most valuable economic assets, hard to create but easy to destroy - a crucial ingredient of a country's social capital. People are more likely to do business together when they trust each other. Trust can reduce market failure that otherwise results from asymmetric information. When there is a lack of trust, people may have to spend heavily on monitoring others' behaviour to ensure they do what they say they will do. This cost may be so high that it is not worth going ahead with a business deal. When trust is absent, people may be less flexible in their dealings with each other. Countries can overcome some of the problems of a lack of trust by passing laws requiring good behaviour, but only to the extent that people trust that the laws will be enforced. One way in which companies seek to demonstrate that they can trust is by investing heavily in a brand.

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