tailieunhanh - Lecture Economics (19/e) - Chapter 16: Public finance: Expenditures and taxes

After reading this chapter, you should be able to: Identify the main categories of government spending and the main sources of government revenue; summarize the different philosophies regarding the distribution of a nation's tax burden; explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes; demonstrate how the distribution of income between rich and poor is affected by government taxes, transfers, and spending. | 16 Public Finance: Expenditures and Taxes Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin LO1 Government and the Circular Flow (1) Costs RESOURCE MARKET PRODUCT MARKET BUSINESSES HOUSEHOLDS (4) Goods and services (7) Expenditures (8) Resources (9) Goods and services (4) Goods and services (10) Goods and services Net taxes (12) Net taxes (11) (3) Consumption expenditures (3) Revenues GOVERNMENT (1) Money income (rents, wages, interest, profits) (2) Land, labor, capital Entrepreneurial ability (2) Resources (5) Expenditures (6) Goods and services 16- LO1 Government Finance Government purchases Exhaustive Transfer payments Nonexhaustive Borrowing and deficit spending Opportunity cost is low during recession; high during growth 16- 20% 40 35 30 25 20 15 10 5 0 2009 1960 Government purchases Government transfer payments 22% 15% 5% Year Percentage of . Output LO1 Government Finance Government purchases, transfers, and total spending as percentages of . output 16- LO1 Federal Expenditures 16- LO1 Personal income tax Progressive tax Marginal tax rate Payroll taxes Corporate income tax Excise taxes Federal Tax Revenues 16- LO1 Local, State, and Federal Employment 16- LO2 Apportioning the Tax Burden Size, distribution, and impact of the costs that taxes impose on society Benefits-received principle Ability-to-pay principle 16- LO2 Apportioning the Tax Burden Progressive tax – average tax rates increase as income increases Regressive tax – average tax rate declines as income increases Proportional tax – average rate stays the same as income increases 16- Tax incidence Who really pays the tax? Excise tax Tax burden depends on elasticity Inelastic vs. elastic Efficiency loss Deadweight loss Transfer of surplus to government Tax Incidence and Efficiency Loss LO3 16- 14 12 10 8 6 4 2 0 5 10 15 20 25 Q P Price (Per Bottle) Quantity (Millions of Bottles Per . | 16 Public Finance: Expenditures and Taxes Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin LO1 Government and the Circular Flow (1) Costs RESOURCE MARKET PRODUCT MARKET BUSINESSES HOUSEHOLDS (4) Goods and services (7) Expenditures (8) Resources (9) Goods and services (4) Goods and services (10) Goods and services Net taxes (12) Net taxes (11) (3) Consumption expenditures (3) Revenues GOVERNMENT (1) Money income (rents, wages, interest, profits) (2) Land, labor, capital Entrepreneurial ability (2) Resources (5) Expenditures (6) Goods and services 16- LO1 Government Finance Government purchases Exhaustive Transfer payments Nonexhaustive Borrowing and deficit spending Opportunity cost is low during recession; high during growth 16- 20% 40 35 30 25 20 15 10 5 0 2009 1960 Government purchases Government transfer payments 22% 15% 5% Year Percentage of . Output LO1 Government Finance Government purchases, transfers, and total .