tailieunhanh - Lecture note Public finance (10th Edition) - Chapter 15: Taxation and efficiency

In this chapter, the following content will be discussed: Taxes and subsidies generally impose excess burdens, caused by tax- or subsidy-induced distortions in behavior; lump sum taxes have no excess burden, although are unattractive for other reasons;. | TAXATION AND EFFICIENCY Chapter 15 Excess Burden Defined Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 Government levies tax on barley i 15- Effect of Tax on Consumption Bundle Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 E2 i ii G 15- Excess Burden of the Barley Tax Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 E2 i ii G H B3 M I Tax Revenues Equivalent variation 15- Questions and Answers If lump sum taxes are so efficient, why aren’t they widely used? Are there any results from welfare economics that would help us understand why excess burdens arise? 15- Questions and Answers Does an income tax entail an excess burden? 15- Questions and Answers Pounds of corn per year Pounds of barley per year C1 D F A Cb Ca B1 = B2 E2 i ii E1 J B3 R K If the demand for a commodity does not change when it is taxed, does this mean that there is no excess burden? S . | TAXATION AND EFFICIENCY Chapter 15 Excess Burden Defined Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 Government levies tax on barley i 15- Effect of Tax on Consumption Bundle Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 E2 i ii G 15- Excess Burden of the Barley Tax Pounds of corn per year Pounds of barley per year E1 B1 C1 D F A Cb Ca B0 E2 i ii G H B3 M I Tax Revenues Equivalent variation 15- Questions and Answers If lump sum taxes are so efficient, why aren’t they widely used? Are there any results from welfare economics that would help us understand why excess burdens arise? 15- Questions and Answers Does an income tax entail an excess burden? 15- Questions and Answers Pounds of corn per year Pounds of barley per year C1 D F A Cb Ca B1 = B2 E2 i ii E1 J B3 R K If the demand for a commodity does not change when it is taxed, does this mean that there is no excess burden? S Uncompensated response Income effect Substitution effect-compensated effect Compensated demand curve 15- Excess Burden Measurement with Demand Curves Pounds of barley per year Price per pound of barley a Db Sb q1 q2 i h S’b Pb (1 + tb)Pb g f d Tax revenues Excess burden of tax Excess burden = ½ ηPbq1tb2 15- Preexisting Distortions Theory of the Second Best Double-dividend hypothesis 15- Excess Burden of a Subsidy Housing services per year Price per unit of housing services m Dh Sh’ h2 h1 u q Sh (1 – s)Ph Ph n o r Excess burden v 15- Excess Burden of Income Taxation Hours per year Wage rate per hour SL L1 L2 a g (1 – t)w w f i h Excess burden d Excess burden = ½ εωL1t2 15- The Allocation of Time Between Housework and Market Work $ $ 0 0’ Hours worked in home per year Hours worked in market per year H* w1 w1 VMPhome VMPmkt (1 – t)VMPmkt H1 a b e c d w2 (1 – t)w2 Excess burden = ½ (ΔH)tw2 15- Does Efficient Taxation Matter? Why no excess burden .