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.
