Taxes
Direct
Indirect
Tax on incomes & firms,
unavoidable
Purpose
Raise finance
for gov spending
↓ inequalities
in Y distribution
Criteria for 'good' tax
Equitable
Those able to pay,
pay more
Economic
Rev > collection cost
Transparent
Convenient
Ease of paying
Paid directly to gov
Tax on G&S
collected by retailers or agents
↑ production cost, AS ←
↑ P ↓ Q traded (?)
Ad Valorem
Specific
% of P charged
AREA
Curve PIVOTS ←
Fixed amt per unit purchased
AS SHIFTS PARALLEL ←
Vertical DIST
Incidence of Taxation
Extent to which tax burden
is borne by consumer & supplier or both
Tax on
consumer ↑
D is P inelastic
S is P elastic
Tax on
supplier ↑
D is P elastic
S is P inelastic
Deadweight Loss
Loss of consumer + producer surplus from indirect tax imposed
Lost value to consumer & producer due to ↓ sales but not in gov tax rev
ART
MRT
Marginal Rate of Taxation
Average Rate of Taxation
Av % of total Y
A proportion of
↑ in Y paid as tax
Always MRT > ART
ART ↑ as Y ↑
Proportional
Tax
Progressive
Tax
Regressive
Tax
Same % taken
from all that pay for it
Rate constant
Y ↑
% total Y paid in tax ↑
MRT > ART
Y ↑
% total Y paid in tax ↓
↓ ART ↓ MRT