Bài giảng Microeconomics - Chapter 15 Public Goods and Taxation

Public Goods and Taxation0What is Chapter 15 about?1I. Public GoodsSlide 15 - 22Private GoodsPure private good:(e.g., a cheeseburger)A good or service that is both:Excludable: Non-payers can easily be excluded from using it Rival: Each unit consumed by one person means one less unit available for others3Nonexcludable and Nonrival GoodsNonexcludable: Non-paying users cannot easily be excluded from using the good Example: Fish in the seaNonrival good: A good whose consumption by one person does not diminish its availability for others Example: radio broadcast, fireworks display4Pure Public GoodsPure public good both nonrival and nonexcludableNational defense, TV & radio, Snow-clearing of streets Reasons for government provisionPrivate business providing the good could not collecting payment for costs “Free-rider” problemEfficiency: since marginal cost of serving additional users is zero (nonrival good), it would be inefficient to charge those users, even if charging were possible.Best to have government provide the good and pay the total costs from tax revenues5Public GoodsTechnology can change the feasibility of charging for specific servicesExample: lighthouse or GPS to warn of hazards ? Scrambling & decoding of satellite TV signals ?“Local Public Goods” & scale of consumption Many goods or services are both nonrival & nonexcludable at some scale of provision Example: housing is a private good to families, but all individuals within household get same house characteristics; local parks, local crime rate & neighbourhood quality6Mixed GoodsCollective goodA good or service that, to at least some degree, is nonrival (public element) but excludable (private element)A large public park in a remote areaPure common goodA good for which nonpayers cannot easily be excluded (nonexcludable; public element ) and for which each unit consumed by one person means one less unit available for others (i.e., rival; private element)Ocean fishery7How to Pay for Public Goods ?Note: Public provision and public production are different issues, because government can and often does sub-contract parts of productionExample: private firms that maintain air force jetsImplication: cost efficiency in production ?If public good is socially useful and desirablePublic provision is unavoidable because cost collection from individual users is infeasibleCost coverage means Taxation is unavoidableIssue is least cost method of taxation8Who should pay ? People benefit unequally from public goodsOne concept of equity: tax people in proportion to their willingness to pay (reservation price) for the public good But this is not directly observableInformation asymmetry @ individual levelIndividual may know own reservation price, but has incentive to understate to avoid payingFeasible to tax observables (e.g. income, consumption)In practice, income elasticity of demand > 1Upper income groups like parks, clean air, safe streets, etc.9Types of Taxes: DefinitionsHead tax: same amount for every taxpayerRegressive tax: proportion of income paid in taxes declines as income risesProportional income tax : all taxpayers pay same proportion of their incomes in taxesProgressive tax:proportion of income paid in taxes rises as income rises10Demand for Private vs. Public GoodsDemand for Private goodsDifferent individuals are free to consume whatever quantity and quality they choose to buyTotal “Willingness to Pay” is Individual Demands summed horizontallyDemand for Public goodsJointly consumed goods must be provided in the same quantity and quality for all personsTotal “Willingness to Pay” is Individual Demands summed vertically (due to nonrival element)11Fig. 15.1Generating the Market Demand Curve for a Private Good93696024182424Q1Q2Q = Q1 + Q2=+Price ($/unit)Price ($/unit)Price ($/unit)=+D1D1D = D1 + D212Fig. 15.2Generating the Total “Willingness to Pay” Demand Curve for a Public GoodD = D1 + D213Fig. 15.3The Optimal Quantity of Parkland14Private Provision of Public GoodsGovernments are not the only potential providers of public goodsCharitable donations fund some public goodsPrivate “clubs” can contract to provide local public goods – e.g. gated communities Sale of by-products – e.g. Internet adsCore problem: under-provision ?15Fig. 15.4The Loss in Surplus from a Pay-per-View FeeViewing householdsCost ($/episode)2010Lost surplus from $10 viewing fee010,000,00020,000,00016II. Additional Considerations Regarding GovernmentSlide 15 - 1717Government, Externalities, Property RightsActivities which generate externalities (e.g. Pollution, education) may be over or under provided by marketRegulation is one policy responseDefinition & enforcement of property rights is another possible policyFeasibility of each depends on issue - but both options require resources - i.e. taxes Issue: Will government regulation have costs greater or less than benefits ?18Local, Provincial, or Federal Government?Under the Canadian Constitution:Provincial and Federal governments must share powerTemptation for politicians: blame other levels of government for all problemsFederalism Common around the world: e.g. USA, Germany, AustraliaWhat is the advantage to multiple levels of government?19Local vs. Federal Govt.Local government A closer match between local preferences & local public policies E.g., French-language education, tax/expenditure mix, Federal government Economies of scale in some government services imply cost savings to centralization E.g., Business statistics, pharmaceutical regulationProvinces spend more than federal governmentEducation & health are the major costsFederal government has larger tax base All federations have inter-governmental $ transfer20Why is Government Now Involved in Education and Health?Efficiency motivation – lower health care costs in a single payer system & faster growth if labour force is well educatedEquity – equality of opportunity - Article 36(1)Universal education and health are basic human rightsE.g., 1948 Universal Declaration of Human RightsMany Canadians take pride in “fairness” & the idea that Canada promotes human rightsThis pride is nonrival and nonexcludableSo education and health can be considered public goods21What Should We Tax?Taxes:Alter the relative costs and benefits of different activitiesAffect the distribution of real purchasing power“Double Dividend” when an activity with negative externalities is taxed Examples – carbon tax, road congestion charges, cigarettes Reduces production of negative externality Raises revenue that can be spent for positive purposes22Fig. 15.5The Loss (Gain) in Surplus from a Tax on Cars121046Quantity (thousands of cars/year)Cost ($1000s/car)S + TS23End of Chapter SlidesConcept Maps meant for student printouts follow.Concept Map slides are also available in pdf format.Slide 15 - 2424What is Chapter 15 about?25I. Public Goods26II. Additional Considerations Regarding Government27Summary of Chapter 1528