Chap015.ppt

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1、CHAPTER15TaxationandEfficiencyCopyright©2010bytheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/IrwinExcessBurdenDefinedPoundsofcornperyearPoundsofbarleyperyearE1B1C1DFACbCaB0GovernmentleviestaxonbarleyiEffectofTaxonConsumptionBundlePoundsofcornper

2、yearPoundsofbarleyperyearE1B1C1DFACbCaB0E2iiiGExcessBurdenoftheBarleyTaxPoundsofcornperyearPoundsofbarleyperyearE1B1C1DFACbCaB0E2iiiGHB3MITaxRevenuesEquivalentvariationQuestionsandAnswersIflumpsumtaxesaresoefficient,whyaren’ttheywidelyused?Arethereanyresul

3、tsfromwelfareeconomicsthatwouldhelpusunderstandwhyexcessburdensarise?QuestionsandAnswersDoesanincometaxentailanexcessburden?QuestionsandAnswersPoundsofcornperyearPoundsofbarleyperyearC1DFACbCaB1=B2E2iiiE1JB3RKIfthedemandforacommoditydoesnotchangewhenitista

4、xed,doesthismeanthatthereisnoexcessburden?SUncompensatedresponseIncomeeffectSubstitutioneffect-compensatedeffectCompensateddemandcurveExcessBurdenMeasurementwithDemandCurvesPoundsofbarleyperyearPriceperpoundofbarleyaDbSbq1q2ihS’bPb(1+tb)PbgfdTaxrevenuesExc

5、essburdenoftaxExcessburden=½ηPbq1tb2PreexistingDistortionsTheoryoftheSecondBestDouble-dividendhypothesisExcessBurdenofaSubsidyHousingservicesperyearPriceperunitofhousingservicesmDhSh’h2h1uqSh(1–s)PhPhnorExcessburdenvExcessBurdenofIncomeTaxationHoursperyea

6、rWagerateperhourSLL1L2ag(1–t)wwfihExcessburdendExcessburden=½εωL1t2TheAllocationofTimeBetweenHouseworkandMarketWork$$00’HoursworkedinhomeperyearHoursworkedinmarketperyearH*w1w1VMPhomeVMPmkt(1–t)VMPmktH1abecdw2(1–t)w2Excessburden=½(ΔH)tw2DoesEfficientTaxa

7、tionMatter?Whynoexcessburdenbudget?Isefficiencytheprimaryobjectiveofgovernmentpolicy?Doesexcessburdenmeanataxisbad?AppendixA–FormulaforExcessBurdenA=½*base*height=½*(di)*(fd)fd=∆Pb=(1+tb)*Pb–Pb=tb*Pbdi=∆qη=(∆q/∆Pb)(Pb/q)∆q=η(q/Pb)∆Pbsince∆Pb=tb*Pb∆q=η(q/Pb

8、)*(tbPb)=η*q*tbsincedi=∆qA=½(di)(fd)=½(ηqtb)*(tbPb)=½*η*Pb*q*(tb)2AppendixB–MultipleTaxesandtheTheoryoftheSecondBestGallonsofginperyearGallonsofrumperyearPricepergallonofginPricepergallonofrumDgDrg1PgDr’Pr(