andGovernmentIntervention(M-Grow-Hill,微观经济

1、Taxation and Government InterventionChapter 7Laugher CurveTwo economists meet on the street.Q. Hows your wife?A. Relative to what?Taxation and GovernmentMost people dislike taxes.For government to operate, it must tax.For the market to work, it needs government.How Much Should Government Tax?In orde

2、r to answer this, we must know the costs and benefits of taxation.How Much Should Government Tax?From previous chapters we know that governments roles include:Providing a stable set of institutions and rules.Promoting effective and workable competition.Correcting for externalities.How Much Should Go

3、vernment Tax?From previous chapters we know that governments roles include:Creating an environment that fosters economic stability and growth.Providing public goods.Adjusting for undesirable market results.The Costs of TaxationThe costs of taxation include:The direct cost of the revenue paid to gove

4、rnmentThe loss of consumer and producer surplus caused by the taxThe cost of administering the tax codes.See Figure 7-1.The Costs of TaxationWhen government raises taxes, there is a loss of consumer and producer surplus that is not gained by government.This is known as deadweight loss.The Costs of T

5、axationGraphically the deadweight loss is shown on a supply-demand curve as the welfare loss triangle.The welfare loss triangle a geometric representation of the welfare loss in terms of misallocated resources caused by a deviation from a supply-demand equilibrium.The Costs of TaxationS1P1tQuantityP

6、riceP0Q0P1Q1Producer surplusS0DemandConsumer surplusDeadweight losstaxThe Costs of TaxationThere are other costs of taxation.Resources must be devoted by the government to administer the tax codes and by citizens and businesses to comply with it.The Costs of TaxationPayroll accounting has become so

7、onerous, businesses large and small often pay payroll-accounting firms to keep up with changing federal and state payroll rules and actually issue paychecks for their clients employees.The Benefits of TaxationThe benefits of taxation are the goods and services that government provides.The Benefits o

8、f TaxationSome of these benefits are the part of the basic institutional structure of a market economy that allows it to work efficiently.The basic legal system is an example.The Benefits of TaxationStill others benefits take on the qualities of a public good national defense, for example.The Benefi

9、ts of TaxationOthers benefits are provided for reasons of equity or because they provide positive externalities.The Benefits of TaxationThe policy debate about the benefits of taxation generally focuses on goods that could be supplied by the market but are publicly supplied.Education and health care

10、 are examples.The Benefits of TaxationMeasuring the benefits of these goods is difficult since they are not provided in a market setting.Two Principles of TaxationTwo Principles of TaxationThe benefit principle states that the individuals who receive the benefit of the good or service should pay the

11、 tax necessary to supply the good.Examples are gasoline taxes and airport taxes, both paid by travelers.Two Principles of TaxationThe ability-to-pay principle states that individuals who are most able to bear the burden of the tax should pay the tax.The best example of this is a progressive tax, suc

12、h as the U.S. income tax.Difficulty of Applying the Principles of TaxationThe principles of taxation are difficult to apply.The two principles often conflict.Difficulty of Applying the Principles of TaxationIn funding health care, for example, the poor should pay because they benefit the most, while

13、 under the ability-to-pay principle, the rich should pay.Difficulty of Applying the Principles of TaxationThe elasticity concept helps us to understand the tradeoffs.The more broadly the good or service is defined, the more inelastic its demand or supply.Difficulty of Applying the Principles of Taxa

14、tionGovernments should tax inelastic goods or services.In the language of consumer and producer surplus, if the government seeks to minimize the welfare loss, it should tax goods with inelastic supplies and demands.Who Bears the Burden of a Tax?The supply and demand framework gives the answer to thi

15、s question.Burden Depends on Relative ElasticityThe person who physically pays the tax is not necessarily the person who bears the burden of the tax.The burden of the tax is rarely shared equally since the elasticities are rarely equal.Burden Depends on Relative ElasticityElasticity is a measure of

16、how easy it is for the supplier and consumer to change behavior and substitute another good.Burden Depends on Relative ElasticityThe relative burden of the tax dictates that the more inelastic ones relative supply and demand, the larger the tax burden one will bear.Burden Depends on Relative Elastic

17、ityIf demand is more inelastic than supply, consumers will pay the higher share. If supply is more inelastic than demand, suppliers will pay the higher share.Burden Depends on Relative ElasticityWho pays a tax is not necessarily who bears the burden.The person who actually pays the tax does not matt

18、er, and the person who bears the burden can differ from the person who pays.Who Bears the Burden of a Tax?Supplier Pays TaxPrice of luxury boats$70,00060,00050,00040,00030,00020,00010,000Quantity of luxury boats 600200400S1DemandS0510taxConsumer paysSupplier paysWho Bears the Burden of a Tax?590Pric

19、e of luxury boats$70,00060,00050,00040,00030,00020,00010,000Quantity of luxury boats 600200400S1S0Demand is inelasticDemandtaxConsumer paysSupplier paysWho Bears the Burden of a Tax?Consumer Pays TaxPrice of luxury boats$70,00060,00050,00040,00030,00020,00010,000Quantity of luxury boats 600200400D0S

20、0510taxConsumer paysSupplier paysD1Tax Incidence and Current Policy DebatesThe analysis of tax incidence is helpful when discussing current policy debates.Social Security TaxesSocial Security taxes are payroll taxes for a government-run retirement program.Both employer and employee contribute the sa

21、me percentage of before-tax wages to the Social Security fund.Social Security TaxesThe fact that both the employer and employee contribute the same percentage does not mean they share the burden equally.Social Security TaxesOn average, labor supply tends to be less elastic than labor demand, so the

22、Social Security tax burden is primarily on employees.Sales TaxesSales taxes are those paid by retailers on the basis of their sales revenue.Since sales taxes are broadly defined, consumers find it hard to substitute.Demand is inelastic so consumers bear the greater burden of the tax.Sales TaxesConsu

23、mers can now buy on the internet where sales are not taxed so that retail stores will bear a greater burden of the tax levied on their sales.Government InterventionTaxation is but one way in which government affects our lives.Other forms of government intervention include price controls.Government I

24、ntervention as Implicit TaxationGovernment intervention can be seen as a combination tax and subsidy.Price CeilingsA price ceiling is a government-set price below market equilibrium price.It is an implicit tax on producers and an implicit subsidy to consumers. This causes a loss in producer and cons

25、umer surpluses that is identical to the welfare loss from taxation.Effect of Price CeilingQuantityPriceP0Q0Q1SupplyDemandProducer surplusConsumer surplusDeadweight lossP1Price ceilingPrice FloorsA price floor is a government-set price above equilibrium price.It is a tax on consumers and a subsidy to

26、 producers.Price floors transfer consumer surplus to producers.Effect of Price FloorQuantityPriceP0Q0Q1SupplyDemandProducer surplusP2Price FloorConsumer surplusDeadweight lossThe Difference Between Taxes and Price ControlsThe effects of taxation and price controls are similar.They are different in t

27、hat price ceilings create shortages and taxes do not. Shortages also create black markets.Both taxes and price controls create deadweight loss.A Price Ceiling with Forced SupplyThe draft is an example of a price ceiling with forced supply.The draft is a military conscription law that requires young

28、men to serve a set period of time in the armed forces at whatever pay the government chooses.A Price Ceiling with Forced SupplyA draft must be imposed when the wage offered by the army is below equilibrium so that the quantity of soldiers demanded is below the quantity supplied.A Price Ceiling with

29、Forced SupplyThose conscripted are forced to accept a lower wage than they would otherwise get, which is a transfer of surplus to the government.Effect of a Draft on SurplusQSQD=DraftWeQuantity of soldiersWageW0Surplus transferred to the governmentDemandSupplyDeadweight loss caused by draftRent Seek

30、ing, Politics, and ElasticitiesPrice controls reduce total producer and consumer surpluses.Governments institute them because people care more about their own surplus than they do about total surplus.If farmers have it, they want crop subsidies.If consumers have it, they want rent controls.Rent Seek

31、ing, Politics, and ElasticitiesPrice controls exist because of political power.This activity is called rent seeking an effort to transfer surplus from one group to another.Rent Seeking, Politics, and ElasticitiesAn enormous amount of time and money is spent in the political arena to increase individ

32、uals surplus.They argue that often when all the rent seeking and tax consequences are netted out, there is no net gain to the public.Rent Seeking, Politics, and ElasticitiesPublic choice economists integrate an economic analysis of politics with their analysis of the economy.Rent Seeking, Politics,

33、and ElasticitiesThere is a greater incentive for rent-seeking when demand and supply is inelastic.Inelastic Demand and Incentives to Restrict SupplyWhen demand is inelastic, producers have incentives to restrict supply.Farming is an example.Since food has few substitutes, its demand is inelastic.Ine

34、lastic demand means that prices fall faster than a rise in quantity sold.Revenues fall, and farmers are worse off.Inelastic Demand and Incentives to Restrict SupplyAdvances in farming productivity increases supply but at lower prices.Inelastic Demand and Incentives to Restrict SupplyThere is an enor

35、mous incentive for farmers to seek a price floor from government or through a producer cooperative.Inelastic Demand and Incentives to Restrict SupplyS0P1Q1P0Q0DemandS1QuantityPriceTotal RevenueRevenue gainedRevenue lostInelastic Supply and Incentives to Restrict PricesConsumers are also rent seekers not just businesses.When supply is inelastic, consumers have incentives to restrict prices.Inelastic Supply and Incentives to Restrict PricesWhen supply is inelastic and demand goes up, prices jump causing consumers to lobby for price controls.Rent control in Ne