Government: taxation and regulation

Government affects microeconomic entities in several ways. Imposition of taxes alters demand and supply. Government also directly regulates some industries and firms. Government acquires most of the money it spends by imposing taxes within the economy. There are

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many different kinds of taxes. Taxation necessarily affects markets and their equilibrium prices and quantities. Some broad-based taxes can affect many markets at once. Tax incidence (sometimes called tax burden) refers to the manner in which the actual payment of a tax is " shared" between suppliers (firms) and consumers of the taxed good. The most common example of tax incidence is that of an excise tax. The incidence of a tax in any particular market depends on the type of tax that is and the respective elasticities of supply and demand in that market.

Individuals, partnerships and trusts pay income tax and capital gains tax. Companies pay corporation taxes. Income tax and capital gains tax are charged for a financial year which runs from April 1 to the following March 31, Companies generally pay corporation taxes nine months after the end of the accounting period.

Individuals usually pay taxes in two installments on January 1 and July 1. Normally taxpayers are given 30 days to pay from the date of issue of an assessment. Tax assessments are ordinarily based on returns issued by the Board of Inland Revenue, often called the Inland Revenue or the IR, for completion by the taxpayer.

If the company or person believes the assessment is incorrect an appeal may be lodged against it. Appeals are made to either the General Commissioners or the Special Commissioners. The commissioners are completely independent of the Inland Revenue.

Employees pay taxes in a different way. When an employee takes a new job, he has to give his new employer his P.45. This is a document which shows the employee's tax coding and the amount of tax he has paid so far in the tax year.

History of antitrust legislation. Antitrust laws first came into being in the U.S. late in the 19^th century, in response to monopoly and collusion in emerging heavy industry. Since then, antitrust action and legislation has been refined. Its objective is to prohibit the " restraint of trade" and to encourage competition; the economic objective is to reduce monopoly profits and encourage more efficient (lower-cost) production.

• Congress created the Interstate Commerce Commission in 1887 to regulate railroads.

• The Sherman Act (1890) was the first attempt to control monopoly and collusion. It declared monopoly and " trade restraint" (overt price fixing) to be illegal.

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• The Clayton Act of 1914 further extended antitrust law to additional activities that lessened competition. It made tying contracts (requiring a customer to buy one product as a condition of acquiring another) illegal, prohibited overt price discrimination, and banned mergers that would lessen competition.

• Congress also created the Federal Trade Commission in 1914; it is empowered to investigate the conduct of businesses in interstate commerce, to seek out unfair competition.

• The Celler-Kefauver Act (1950) extended the power of the Federal Government to control trade-restraining activity. It also closed loopholes in antitrust law.

• Penalties for violation of antitrust legislation also have become more severe over time.

Arguments favoring antitrust enforcement: Perhaps the most significant arguments supporting antitrust enforcement can be found in basic economic theory: monopoly and oligopoly produce excess profits and are inherently inefficient (do not produce output at the lowest possible cost).

• Price-fixing and collusion, illegal under antitrust law, serve no
purpose other than to increase profits of the conspiring firms. These
activities increase costs, with no corresponding social benefit.
Outlawing such practices encourages more efficient production.

· Antitrust law bans unfair and deceptive practice, which can interfere with the knowledge that consumers need in order to make rational economic decisions.

· " Trust-busting" (breaking up large monopolies) often has had very successful outcomes by increasing competition.

Arguments against antitrust enforcement: Major arguments against antitrust enforcement concentrate upon what might be termed excessive zeal on the part of enforcement: bigness is not necessarily badness.

• It can be a penalty for success. A firm can be so efficient that it comes
to dominate a market simply because its product or service is better
and/ or cheaper than anything its competitors can make. Regulating
such a firm or forcing it to give up part of its market so as to enhance
competition actually can be counterproductive.

· Modern international markets favor the large, integrated company or industry. Some countries (notably Japan) have governments that

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very actively support their large industries and firms, rather than hounding them about their excessive size or market domination.