Chapter 31: Taxation

Rent seeking

Gaining an unearned benefit/concession from the gov’t

Ability to pay

Those with more money pay more (income tax)

Benefits received

Those that use it pay (gas tax, tolls)

Progressive taxation

make more money, pay a higher % in taxes

Prog tax example

Income tax

Regressive taxation

Make more money, pay a lower % in taxes

Regressive tax example

Sales tax, Real estate tax

Proportional Taxation

Pay a fixed portion of your income in taxes

Proportional tax example

20% of income in taxes, regardless of income

Lump sum tax

$5,000 income tax for all, regressive

Consumer surplus

Demand - Price (subtract)

Producer surplus

Price - Supply (subtract)

Deadweight Loss

Lost effiency or lost surplus

Tax revenue

Per unit tax * # of units sold

Tax Burden: Inelastic supply, Elastic Demand

Burden on Seller

Tax Burden: Elastic Supply, Inelastic Demand

Burden on buyer

Tax Burden: Elasticities are equal

Equal burden

Tax Burden: Perf. Inelastic Demand or perf elastic supply

100% burden on buyer

Tax Burden: Perf Elastic Demand or perf inelastic suply

100% burden on seller