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{{Unreferenced|date=May 2010}}
{{Unreferenced|date=May 2010}}
'''Hypothecation''', in the context of taxation, is the dedication of the revenue of a specific [[tax]] for a specific expenditure purpose. (The original definition of hypothecation is a pledging of assets: the expected revenue from the tax in question is pledged to a particular cause). It is otherwise known as '''ring-fencing'''.
The '''hypothecation of a tax''' (also known as the '''ring fencing''' or '''ear marking''' of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose. [[Hypothecation]] is the pledging of assets.


Dedicated taxes are often subject to unexpected shortfalls and surpluses. This may create political pressure to adjust the tax, to budget non-dedicated revenues for the purpose in question, or to reallocate surplus funds to other purposes. Examples of hypothecation in this sense include the [[Fuel taxes in the United States|gasoline tax]] in the [[United States]] which is dedicated, or "[[Earmark (finance)|earmarked]]" in the jargon of American public finance, to the funding of transportation infrastructure.
Hypothecated taxes are often subject to unexpected shortfalls and surpluses. This may create political pressure to adjust the tax, to budget non-dedicated revenues for the purpose in question, or to reallocate surplus funds to other purposes. Examples of hypothecated taxation include the [[Fuel taxes in the United States|gasoline tax in the U. S.]], a tax on [[gasoline|petrol]] which is dedicated to the funding of transport infrastructure.


A common example in many European countries is a [[television licence]]. Here, all owners of [[television set]]s are obliged to pay the government an annual fee to use their televisions. The proceeds of the fee are then used to fund [[public broadcasting]]. Another example is a dedicated tax on the private trading of [[Security (finance)|securities]] (for example, 0.3 cents per dollar traded) used to fund [[public works]] programmes directly or to pay the finance costs of such programmes.
A common example in many European countries is a [[television licence]]. Here, all owners of [[television set]]s are obliged to pay the government an annual fee to use their televisions. The proceeds of the levy are then used to fund [[public broadcasting]]. Another example is a dedicated tax on the private trading of [[Security (finance)|securities]] (for example, 0.3 cents per dollar traded) used to fund [[public works]] programmes directly or to pay the finance costs of such programmes.

==See also==
*[[Earmark (finance)|Earmark]]


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Revision as of 12:54, 30 October 2011

The hypothecation of a tax (also known as the ring fencing or ear marking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose. Hypothecation is the pledging of assets.

Hypothecated taxes are often subject to unexpected shortfalls and surpluses. This may create political pressure to adjust the tax, to budget non-dedicated revenues for the purpose in question, or to reallocate surplus funds to other purposes. Examples of hypothecated taxation include the gasoline tax in the U. S., a tax on petrol which is dedicated to the funding of transport infrastructure.

A common example in many European countries is a television licence. Here, all owners of television sets are obliged to pay the government an annual fee to use their televisions. The proceeds of the levy are then used to fund public broadcasting. Another example is a dedicated tax on the private trading of securities (for example, 0.3 cents per dollar traded) used to fund public works programmes directly or to pay the finance costs of such programmes.

See also