Final answer:
The effective tax rate averages all taxes and benefits affecting the company's income, the cash tax rate shows the actual cash paid for taxes, and the structural tax rate is the statutory rate without considering tax reliefs.
Step-by-step explanation:
The difference between a company's effective tax rate, cash tax rate, and structural tax rate lies in how they are calculated and what they represent. The effective tax rate is the average rate at which a company's pre-tax profits are taxed; it considers all the different taxes a company pays and tax benefits it receives in the current tax year.
The cash tax rate reflects the actual amount of cash taxes paid in a period relative to the accounting income, highlighting the company's cash flow related to taxes. The structural tax rate is the standard statutory tax rate before considering any tax reliefs or benefits that a company might be able to exploit.
Effective taxes are those that meet certain criteria which ensure that people are willing to pay them. These criteria include being efficient, simple, and equitable. Efficient taxes are easy to administer and successful in generating revenue, while simplicity and equity make them understandable and fair to taxpayers.
To understand the economic impact of taxes, one can examine how changes in tax rates affect disposable income, labor supply decisions, and overall economic activity. For instance, a cut in the income tax rate may increase households' disposable income, potentially stimulating the economy.