Average Tax Rate (ATR)

• Definition: It's the percentage of your total income that you pay in taxes. In other words, if you make €100 and pay €20 in taxes, your ATR is 20%.
• It can be applied to various bases like income, profits, wealth, or spending.

 Marginal Tax Rate (MTR)

• Definition: This is the tax rate on the very last “dollar” (or euro) you earn.
• Imagine you're on a ladder, and each rung is a higher level of income. MTR is the tax rate of the step you just reached.

Real-World Example: 🌍

Meet Nikos and Sofia, two busy bees working their way through life:

• Nikos: Earns €35,000 and pays 37% on his last euro earned (MTR).
• Sofia: Earns €70,000, paying €24,500 in tax.

What we learn is that as their incomes rise, their ATR rises, and the MTR is more significant than the ATR. More income, more taxes - at least at the margin.

Progressive Tax System

• Definition: The more you earn, the higher the tax rate.
• Real-World Example: Many countries use this to help reduce income inequality. Imagine buying tickets to a fancy concert; the better your seat (or income level), the more you pay.
• In Nikos and Sofia's world, the tax system is progressive; Sofia pays proportionately more than Nikos.

 Proportional Tax System

• Definition: Everyone pays the same percentage of their income, regardless of how much they earn.
• Think of a buffet restaurant where everyone pays the same price for the meal, whether they eat a lot or a little. That's proportional taxing in action!

 Regressive Tax System

• Definition: The more you earn, the lower your tax rate.
• Imagine a bizarro world where the more candy you buy, the cheaper each piece becomes. It may sound sweet, but it's often considered unfair to those who earn less.