Policy Tools - Income Tax

Income tax is one of the key variables in the Virtual Economy (and the real one!). Adjusting the level of taxes is a key part of the government's fiscal policy. It can use taxes both as a demand-side policy and as a supply-side policy. It is possible to change tax rates, thresholds and allowances in the model to see the effects of these changes both on the macroeconomy and on individuals and families with different income levels (the microeconomy).

To help see the effects of income tax changes on the economy, there are a variety of resources:

• An explanation of income tax and how it is charged
• Relevant theories about income tax
• Worksheets to help see the effect of tax changes in the Virtual Economy