andGovernmentIntervention(M-Grow-Hill,微观经济

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,Fourth Level,Fifth Level,Copyright 2001 by The McGraw-Hill Companies, Inc.All rights reserved.,McGraw-Hill/Irwin,7 -,69,Taxation and Government Intervention,Chapter 7,Laugher Curve,Two economists meet on the street.,Q. Hows your wife?,A. Relative to what?,Taxation and Government,Most people dislike taxes.,For government to operate, it must tax.,For the market to work, it needs government.,How Much Should Government Tax?,In order 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 Government 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 Taxation,The costs of taxation include:,The direct cost of the revenue paid to government,The loss of consumer and producer surplus caused by the tax,The cost of administering the tax codes.,See Figure 7-1.,The Costs of Taxation,When 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 Taxation,Graphically 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 Taxation,S,1,P,1t,Quantity,Price,P,0,Q,0,P,1,Q,1,Producer surplus,S,0,Demand,Consumer surplus,Deadweight loss,tax,The Costs of Taxation,There 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 Taxation,Payroll accounting has become so 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 Taxation,The benefits of taxation are the goods and services that government provides.,The Benefits of Taxation,Some 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 Taxation,Still others benefits take on the qualities of a public good national defense, for example.,The Benefits of Taxation,Others benefits are provided for reasons of equity or because they provide positive externalities.,The Benefits of Taxation,The 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 are examples.,The Benefits of Taxation,Measuring the benefits of these goods is difficult since they are not provided in a market setting.,Two Principles of Taxation,Two Principles of Taxation,The,benefit principle,states that the individuals who receive the benefit of the good or service should pay the tax necessary to supply the good.,Examples are gasoline taxes and airport taxes, both paid by travelers.,Two Principles of Taxation,The,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, such as the U.S. income tax.,Difficulty of Applying the Principles of Taxation,The principles of taxation are difficult to apply.,The two principles often conflict.,Difficulty of Applying the Principles of Taxation,In funding health care, for example, the poor should pay because they benefit the most, while under the ability-to-pay principle, the rich should pay.,Difficulty of Applying the Principles of Taxation,The 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 Taxation,Governments 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 this question.,Burden Depends on Relative Elasticity,The 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 Elasticity,Elasticity,is a measure of how easy it is for the supplier and consumer to change behavior and substitute another good.,Burden Depends on Relative Elasticity,The 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 Elasticity,If 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 Elasticity,Who pays a tax is not necessarily who bears the burden.,The person who actually pays the tax does not matter, and the person who bears the burden can differ from the person who pays.,Who Bears the Burden of a Tax?,Supplier Pays Tax,Price of luxury boats,$70,000,60,000,50,000,40,000,30,000,20,000,10,000,Quantity of luxury boats,600,200,400,S,1,Demand,S,0,510,tax,Consumer pays,Supplier pays,Who Bears the Burden of a Tax?,590,Price of luxury boats,$70,000,60,000,50,000,40,000,30,000,20,000,10,000,Quantity of luxury boats,600,200,400,S,1,S,0,Demand is inelastic,Demand,tax,Consumer pays,Supplier pays,Who Bears the Burden of a Tax?,Consumer Pays Tax,Price of luxury boats,$70,000,60,000,50,000,40,000,30,000,20,000,10,000,Quantity of luxury boats,600,200,400,D,0,S,0,510,tax,Consumer pays,Supplier pays,D,1,Tax Incidence and Current Policy Debates,The analysis of tax incidence is helpful when discussing current policy debates.,Social Security Taxes,Social Security taxes are payroll taxes for a government-run retirement program.,Both employer and employee contribute the same percentage of before-tax wages to the Social Security fund.,Social Security Taxes,The fact that both the employer and employee contribute the same percentage does not mean they share the burden equally.,Social Security Taxes,On average, labor supply tends to be less elastic than labor demand, so the Social Security tax burden is primarily on employees.,Sales Taxes,Sales 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 Taxes,Consumers 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 Intervention,Taxation is but one way in which government affects our lives.,Other forms of government intervention include price controls.,Government Intervention as Implicit Taxation,Government intervention can be seen as a combination tax and subsidy.,Price Ceilings,A,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 consumer surpluses that is identical to the welfare loss from taxation.,Effect of Price Ceiling,Quantity,Price,P,0,Q,0,Q,1,Supply,Demand,Producer surplus,Consumer surplus,Deadweight loss,P,1,Price ceiling,Price Floors,A,price floor,is a government-set price above equilibrium price.,It is a tax on consumers and a subsidy to producers.,Price floors transfer consumer surplus to producers.,Effect of Price Floor,Quantity,Price,P,0,Q,0,Q,1,Supply,Demand,Producer surplus,P,2,Price Floor,Consumer surplus,Deadweight loss,The Difference Between Taxes and Price Controls,The effects of taxation and price controls are similar.,They are different in that 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 Supply,The draft is an example of a price ceiling with forced supply.,The,draft,is a military conscription law that requires young men to serve a set period of time in the armed forces at whatever pay the government chooses.,A Price Ceiling with Forced Supply,A 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 Forced Supply,Those 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 Surplus,Q,S,Q,D,=Draft,W,e,Quantity of soldiers,Wage,W,0,Surplus transferred to the government,Demand,Supply,Deadweight loss caused by draft,Rent Seeking, Politics, and Elasticities,Price 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 Seeking, Politics, and Elasticities,Price 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 Elasticities,An enormous amount of time and money is spent in the political arena to increase individuals 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 Elasticities,Public choice economists integrate an economic analysis of politics with their analysis of the economy.,Rent Seeking, Politics, and Elasticities,There is a greater incentive for rent-seeking when demand and supply is inelastic.,Inelastic Demand and Incentives to Restrict Supply,When demand is inelastic, producers have incentives to restrict supply.,Farming is an example.,Since food has few substitutes, its demand is inelastic.,Inelastic 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 Supply,Advances in farming productivity increases supply but at lower prices.,Inelastic Demand and Incentives to Restrict Supply,There is an enormous incentive for farmers to seek a price floor from government or through a producer cooperative.,Inelastic Demand and Incentives to Restrict Supply,S,0,P,1,Q,1,P,0,Q,0,Demand,S,1,Quantity,Price,Total Revenue,Revenue gained,Revenue lost,Inelastic Supply and Incentives to Restrict Prices,Consumers are also rent seekers not just businesses.,When supply is inelastic, consumers have incentives to restrict prices.,Inelastic Supply and Incentives to Restrict Prices,When supply is inelastic and demand goes up, prices jump causing consumers to lobby for price controls.,Rent control in New York City is an example.,Price Floors and Elasticity of Demand and Supply,P,F,P,E,Q,D,Q,S,Supply,Demand,Quantity,Price,Price floor with elastic supply and demand,Price Floors and Elasticity of Demand and Supply,Quantity,Price,Supply,Demand,Price floor with elastic supply and inelastic demand,P,F,P,E,Q,D,Q,S,Price Floors and Elasticity of Demand and Supply,Quantity,Price,Supply,Demand,Price floor with inelastic supply and demand,P,F,P,E,Q,D,Q,S,The Long-Run/Short-Run Problem of Price Controls,The problem of price controls worsen from the short run to the long run.,In the long run, supply and demand tend to be much more elastic than in the short run.,The Long-Run/Short-Run Problem of Price Controls,So in the short run there will be small effects from the price controls, but huge effects in the long run.,The Long-Run/Short-Run Problem of Price Controls,In the face of price controls, potential new competitors hate to enter the market thereby strangling supply,Vacancy rates drop as potential new renters scramble to find shrinking affordable housing.,Long-Run and Short-Run Effects of Price Controls,P,0,Q,0,Quantity,P,1,Q,1,P,2,Q,2,Q,3,Short run supply,D,0,Price,Long run supply,D,1,Price ceiling,Shortage,Taxation and Government Intervention,End of Chapter 7,