Bài giảng MicroEconomics - Chapter 017 Public Choice Theory and the Economics of Taxation

Public Choice Theory and the Economics of TaxationChapter 17McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesConveying economic preferences through majority votingGovernment failureTax philosophies and the tax burdenTax shifting, tax incidence, and efficiency losses from taxes17-2Majority VotingCan result in inefficiencyOver or underproduction of a public goodIndividuals think only of themselvesStrength of preferences ignoredInterest groupsLogrolling17-3Majority VotingInefficientMajority “No” VoteInefficientMajority “Yes” Vote$300$300Benefit; TaxBenefit; Tax00$700$250$200$100$350$350AdamsAdamsBensonBensonConradConrad“NO”“NO”“YES”“YES”“YES”“NO”MSB > MSC$1,150 > $900Inefficient Since“NO” Wins! MSB < MSC$800 < $900Inefficient Since“YES” Wins! 17-4Majority VotingParadox of votingPaired choice majority votingFlawed procedureOutcome depends on vote orderMedian voter modelPoliticians appeal to the middleExtremes pick the middleImplications 17-5Government FailureSpecial-interest effectPork-barrel politicsRent-seeking behaviorClear benefits, hidden costsLimited and bundled choiceBureaucracy and inefficiencyImperfect institutions17-6The Tax BurdenHow should the tax burden be apportioned?Benefits-received principleAbility-to-pay principleProgressive taxRegressive taxProportional tax17-7Types of TaxesPersonal income taxSales taxCorporate income taxPayroll taxProperty tax17-8Tax IncidenceWho really pays the tax?Excise taxTax burden depends on elasticityInelastic vs. elasticEfficiency loss of an excise taxDeadweight lossDepends on elasticityTransfer of surplus to govt.17-9Tax Incidence of an Excise Tax02468101214510152025QPPrice (Per Bottle)Quantity(Millions of Bottles Per Month)SDStTax $217-10Tax IncidenceWhy impose an excise tax?Discourage consumptionRedistributive goalsReduce negative externalityBurden of the excise tax?Depends on elasticityAvailability of substitutes17-11Tax Incidence and Elasticity0PQQP0Tax Incidence andElastic DemandTax Incidence andInelastic DemandSmaller efficiency loss with inelastic demandDeDiTaxTaxStSStSQ2P1PePaP1PiPbQ1Q2Q1aabbcc17-12Tax Incidence and Elasticity0PQQP0Tax Incidence andElastic SupplyTax Incidence andInelastic SupplySmaller efficiency loss with inelastic supplyDDSSStStP1PaPeP1PbPiQ1Q2Q1Q2TaxTaxaabbcc17-13Efficiency Loss of a Tax02468101214510152025QPPrice (Per Bottle)Quantity(Millions of Bottles Per Month)SDS’Tax $2Tax Paid byConsumersTax Paid byProducersEfficiencyLoss (orDeadweightLoss)17-14Incidence of U.S. TaxesWorkers bear full burden of:Social security taxMedicare taxIncome taxBurden of corporate income tax:Stockholders (short run)Workers (long run)17-15U.S. Tax StructureFederal tax system progressiveState and local system is regressiveOverall tax structure slightly progressive17-16Taxes on General ConsumptionPercentage of GDP, 2005IcelandDenmarkSwedenNew ZealandFranceGermanyItalyCanadaJapanUnited States0 2 4 6 8 10 12 14Source: Organization for Economic Cooperation and Development Sales tax, excise tax, value-added tax17-17Government FailureExamples of pork barrel politicsChicago “wilderness” programBison meat, cauliflower, and pumpkin supportsCatfish as livestock spending9,300 special projects in 2003Waste and fraud in Katrina relief spending17-18Key Termspublic choice theorylogrollingparadox of votingmedian-voter modelgovernment failurespecial-interest effectearmarksrent seekingbenefits-received principleability-to-pay principleprogressive taxregressive taxproportional taxtax incidenceefficiency loss of a tax17-19Next Chapter PreviewAntitrust Policy andRegulation17-20