'Chapter 12 Taxation and Income Distribution\r'

'Chapter 12 imposeation and Income Distribution I. Impact of assesses on income distribution hard to determine because of value revenueation income relative relative relative relative incidence II. measure Incidence a. Who really pays a revenue enhancement b. Legal Incidence †who is legally responsible for paying a tax c. sparing Incidence †who actually pays the tax d. usage †tax of $1 is located on $10 item how is income distribution unnatural i. wrong stays at $10 †income of marketer centralised 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 limit taxes affect quantity sold and produced, tax affects income of suppliers of inputs for the reaping. i. Example: tax on gasoline reduces gasoline white plague 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. revenue enhancement Incidence Perspectives a. People pay taxes non corporations b. How to separate people for purposes of tax incidence i. Often teleph one and only(a) of producers and consumers 1. But consumers are as well as producers and producers are also consumers 2. 0 of households own bank line directly, otherwises own stock indirectly ii. By income Rich, Middle Class, Poor 1. How do you define these categories? c. levy affect both suppliers of inputs and consumers of a product. i. In practice tend to ignore one side and do abstract on the other 1. Tax in commodity ignore refers on inputs 2. Tax on inputs, ignore impact on consumers d. Incidence depends on how prices are determined i. How taxes channelize prices determine who pays the taxes ii. Amount of time is important †more than time more adjustment to taxes e. Tax incidence depends on how tax revenues are spend . progressiveness of tax musical arrangement i. Policy says tax system should be progr essive. ii. Higher income pay a high ploughshare of taxes 1. Usually measured as subjoin in average tax rate taxes/income 2. Exemptions, deductions and borderline 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 residual 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. arrogate if tax is downhearted ii. Appropriate if market is small iii. Otherwise need general equilibrium analysis c. Tax incidence of a unit tax †tax per unit of the sizeable i. Legal incidence on buyers †externalize 12. 2 1. Tax reduces the deal curve for the product from the supplier’s arcdegree of view since at each price the consumer buys less(prenominal) of the product. [pic] ii. Legal incide nce on seller †enrol 12. 3 1. Tax reduces the release curve for the product from the consumer’s point of view since at each price the suppliers supply less of the product pic] iii. Economic incidence is independent of legal incidence 1. have at like Price, Quantity, and tax split careless(predicate) of whether tax is on producer or supplier. a. gross 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 good i. A percentage tax rather than a unit tax ii. Sales tax as compared to gasoline tax iii. More difficult to reason but shifts demand as shown in figure 12. V. Payroll Tax Controversy a. Legal incidence 7. 5% pay by employer and 7. 5% give by employee b. Statutory distinction between employer and employee is inapplicable c. Economic split depends on elasticity of supply of trade union movement d. Logical that the labor supply is moderately 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 letter perfectly mobile b. Moved to where return is highest after adjusting for happen c. Rate of return on capital same everywhere in world d.No single unsophisticated can make suppliers of capital bear each 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 in 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 funds because profit is return on capital and lay on the line b.Tax on economic profits born completely by company with change in deportment c. Seemly ideal tax but not very working(a) X. Tax Incidence and capitalisation a. Tax increase on real kingdom is capitalized into PV of berth 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 graduation exercise paragraph P 271 b. Generally not operational [pic] ———————†Po Pg Pn Q0 Q1 egress Consumer claim supplier Perceived Demand Tax compensable by Consumers Tax paid by SuppliersDeadweight hurt 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 Consumer Losses and Producer losses Deadweight Loss Consumer Losses and Producer losses Tax paid by Suppliers Tax paid by Consumers Consumer Perceived Supply Demand Supply three hundred four hundred 95 cxl 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\r\n'