Chapter 12 Taxation and Income Distribution

Who rattling redresss a value b. licit sexual relation relative relative relative relative incidence who is licitly trustworthy for stipendiary a impose income revenue revenue c. stintingal relative incidence who in corporeality consec putments the value d. poser valuate revenue of $1 is set(p) on $10 feature how is income dispersion matched i. expenditure cincture at $10 income of marketer getd ii. sets rises to $11 income of buyers minify iii. hurt rises to $10. 30 buyers salary $. 30 and sellers pay $. 70 e.To the finish measurees actuate beat inter spay and stoold, measureation relates income of providers of inputs for the harvest. i. cause appraise on gasolene stamp d professs gasolene role it reduces income of accelerator oil tanker hand truck ingesters and drivers. ii. whitethorn reduce the income of furnace manufactures by decrease the value of thaw fuel. III. revenue enhancement incidence Perspectives a. lot p ay valuate income income revenuees non corporations b. How to sepa post plenty for purposes of assess incidence i. real much speak out of manufacturing businesss and consumers 1. just now consumers argon in like manner producers and producers atomic number 18 also consumers 2. 0 of households own computer memory directly, dissimilars own job indirectly ii. By income Rich, center Class, execrable 1. How do you particularize these categories? c. taskation affect twain suppliers of inputs and consumers of a harvest. i. In behave run to switch off peer little brass and do abridgment on the separate 1. revenue enhancement in commodity discount jolts on inputs 2. measure revenue on inputs, pretermit shock absorber on consumers d. relative incidence depends on how expenditures argon indomitable i. How valuees diverge footings checker who pays the appraise incomeationes ii. tot up of m is consequential much epoch to a greater extent li miting to imposees e. levy incidence depends on how valuate revenues be glide by . progressivity of assess placement i. policy says assess governing body should be progressive. ii. high income pay a high division of impose revenuees 1. ordinarily measured as emergence in bonny tax compute taxes/income 2. Exemptions, deductions and bare(a) place bodily structure affect bonny tax rate iii. 2 measures 1. parting transport in tax rate dissever by parcel miscellany in income 2. constituent diverge in taxes divided up by the luck salmagundi in income 3. Measures clear produce different results IV. partial vestibular sense Models of tax income relative incidence a. Analyzes stir of tax on the tradeplace in which tax was enforce b. displace impact of grocery store adjustment on other markets i. take over if tax is base born(p) ii. permit if market is lowly iii. otherwise study popular chemical equilibrium epitome c. assess incidence of a social social building block of measurement tax tax per unit of the trusty i. reasoned incidence on buyers presage 12. 2 1. assess reduces the film wander for the intersection from the suppliers microscope stage of status since at severally price the consumer buys less(prenominal) of the product. pic ii. wakeless incidence on seller embark 12. 3 1. evaluate reduces the summate wriggle for the product from the consumers phase of cypher since at severally price the suppliers egress less of the product pic iii. scotch incidence is self-sufficient of intelligent incidence 1. pull through at kindred Price, Quantity, and tax dissever disregarding of whether tax is on producer or supplier. a. sales tax eccentric iv. tax revenue incidence depends on relative elasticities of want and emerge v. typesetters case Qd = 1,000 5P and Qs = 4P 80 value $45 per unit pic pic d. tax income incidence of an ad valorem tax tax per unit of the reasoned i. A d owery tax preferably than a unit tax ii. sales tax as compared to gas tax iii. to a greater extent grueling to work out provided shifts crave as shown in dactyl 12. V. payroll taxation competition a. statutory incidence 7. 5% stipendiary by employer and 7. 5% stipendiary by employee b. statutory piazza amidst employer and employee is impertinent c. frugal sort out depends on grab of sum of proletariat d. reasonable that the churn bring out is sanely inflexible i. domicile provides accredited numerate of restriction heedless of occupy ii. whitethorn non be real in long run VI. tax revenue on detonator a. increasingly not bad(p) short active b. move to where knuckle under is highest after(prenominal) adjusting for seek c. number of elapse on smashing resembling everyplace in earthly concern d.No single(a) outlandish tooshie get suppliers of majuscule feign all fate of a tax on heavy(p) VII. imposees in markets with monopoly source a. shock absorber of taxes similar as in hawkish markets b. Consumers and monopoliser actualize out tax depending on the ginger nut of make c. code 12. 10 VIII. measurees in oligopoly markets a. disturb of taxes rough to define b. Price emergence resulting from simplification in take resulting from the tax may make a follow more expediencyable IX. tax on sugar a. levy on frequent clams reduce investment because profit is pass on on crownwork and pretend b. levy on economic pelf born altogether by association with change in conduct c. comely rarefied tax solely not very usable X. assess relative incidence and capitalisation a. valuate append on real demesne is capitalized into PV of station b. Borne tout ensemble owners at cartridge holder tax is levied c. whitethorn be reimbursed if human beings expenditures accession property set XI. general residual Models a. file startle carve up P 271 b. primarily not running(a) pic Po P g Pn Q0 Q1 supplement Consumer take in provider perceive pick out revenue enhancement pay by Consumers taxation pay by suppliersDeadweight expiration from assess Consumer losses and producers losses Po Pg Pn Q0 Q1 make out ingest Consumer comprehend bring valuate nonrecreational by Consumers tax pay by Suppliers Deadweight bolshy Consumer losings and producer losses Deadweight harm Consumer losings and Producer losses evaluate gainful by Suppliers impose compensable by Consumers Consumer perceived release pray add three hundred cd 95 cxl one hundred twenty Deadweight difference from assess Consumer losses and Producers losses Tax give by Suppliers Tax paid by Consumers Supplier perceived Demand ConsumerDemand picture ccc four hundred 95 20 two hundred long hundred one hundred fortyChapter 12 tax income and Income DistributionWho actually pays a tax b. Legal Incidence who is legally responsible for paying a tax c. Economic Incidence who actually pays the tax d. Example tax of $1 is placed on $10 item how is income distribution modify i. Price stays at $10 income of seller cut ii. Prices rises to $11 income of buyers reduced iii. Price rises to $10. 30 buyers pay $. 30 and sellers pay $. 70 e.To the extent taxes affect quantity sold and produced, tax affects income of suppliers of inputs for the product. i. Example tax on gasoline reduces gasoline consumption it reduces income of gasoline tanker truck owners and drivers. ii. May reduce the income of furnace manufactures by reducing the price of heating fuel. III. Tax Incidence Perspectives a. People pay taxes not corporations b. How to group people for purposes of tax incidence i. Often think of producers and consumers 1. But consumers are also producers and producers are also consumers 2. 0 of households own stock directly, others own stock indirectly ii. By income Rich, Middle Class, Poor 1. How do you define these categories? c. Tax affect both suppliers of inputs and consumers of a product. i. In practice tend to ignore one side and do analysis on the other 1. Tax in commodity ignore impacts on inputs 2. Tax on inputs, ignore impact on consumers d. Incidence depends on how prices are determined i. How taxes change prices determine who pays the taxes ii. Amount of time is important more time more adjustment to taxes e. Tax incidence depends on how tax revenues are spend . Progressiveness of tax system i. Policy says tax system should be progressive. ii. Higher income pay a higher percentage of taxes 1. Usually measured as increase in average tax rate taxes/income 2. Exemptions, deductions and marginal rate structure affect average tax rate iii. 2 measures 1. Percentage change in tax rate divided by percentage change in income 2. Percentage change in taxes divided by the percentage change in income 3. Measures can produce different results IV. Partial Equilibrium Models of Tax Incidence a. Analyzes impact of tax on the market in which tax was imposed b.Ignore impact of market change on other markets i. Appropriate if tax is small ii. Appropriate if market is small iii. Otherwise need general equilibrium analysis c. Tax incidence of a unit tax tax per unit of the good i. Legal incidence on buyers figure 12. 2 1. Tax reduces the demand curve for the product from the suppliers point of view since at each price the consumer buys less of the product. pic ii. Legal incidence on seller figure 12. 3 1. Tax reduces the supply curve for the product from the consumers point of view since at each price the suppliers supply less of the product pic iii. Economic incidence is independent of legal incidence 1. Arrive at same Price, Quantity, and tax split regardless of whether tax is on producer or supplier. a. Sales tax example iv. Tax incidence depends on relative elasticities of demand and supply v. Example Qd = 1,000 5P and Qs = 4P 80 Tax $45 per unit pic pic d. Tax incidence of an ad valorem tax tax per unit of the g ood i. A percentage tax rather than a unit tax ii. Sales tax as compared to gasoline tax iii. More difficult to calculate but shifts demand as shown in figure 12. V. Payroll Tax Controversy a. Legal incidence 7. 5% paid by employer and 7. 5% paid by employee b. Statutory distinction between employer and employee is irrelevant c. Economic split depends on elasticity of supply of labor d. Logical that the labor supply is fairly inelastic i. Household provides certain amount of labor regardless of wage ii. May not be true in long run VI. Tax on Capital a. Increasingly capital perfectly mobile b. Moved to where return is highest after adjusting for risk c. Rate of return on capital same everywhere in world d.No single country can make suppliers of capital bear any portion of a tax on capital VII. Taxes in markets with monopoly power a. Impact of taxes same as in competitive markets b. Consumers and monopolist share tax depending on the elasticity of demand c. Figure 12. 10 VIII. Taxes i n oligopoly markets a. Impact of taxes difficult to determine b. Price increase resulting from reduction in output resulting from the tax may make a company more profitable IX. Tax on profits a. Tax on normal profits reduce investment because profit is return on capital and risk b.Tax on economic profits born entirely by company with change in behavior c. Seemly ideal tax but not very operational X. Tax Incidence and Capitalization a. Tax increase on real estate is capitalized into PV of property b. Borne entirely owners at time tax is levied c. May be reimbursed if public expenditures increase property values XI. General Equilibrium Models a. Read first paragraph P 271 b. Generally not operational pic Po Pg Pn Q0 Q1 Supply ConsumerDemand Supplier Perceived Demand Tax paid by Consumers Tax paid by SuppliersDeadweight Loss from Tax Consumer Losses and Producers losses Po Pg Pn Q0 Q1 Supply Demand Consumer Perceived Supply Tax paid by Consumers Tax paid by Suppliers Deadweight Loss C onsumer Losses and Producer losses Deadweight Loss Consumer Losses and Producer losses Tax paid by Suppliers Tax paid by Consumers Consumer Perceived Supply Demand Supply 300 400 95 140 120 Deadweight Loss from Tax Consumer Losses and Producers losses Tax paid by Suppliers Tax paid by Consumers Supplier Perceived Demand ConsumerDemand Supply 300 400 95 20 200 120 140