Krugman Microeconomics 2nd Ed, Chapter 7

tax base

the measure of value that determines how much tax and individual or firm pays

tax structure

specifies how the tax depends on the tax base

tax incidence

Who really bears the burden of the tax. Depends on the price elasticity of supply and the price elasticity of demand.

excise tax burden falling on consumers

The excise tax burden falls on consumers when the price elasticity of demand is low and the price elasticity of supply is high because consumers have few substitutes.

deadweight lost of a tax

the quantity of consumer and producer surplus lost due to an excise tax; the triangle that is created by the right side of the revenue rectangle and the supply and demand curves.

benefits principle

those who benefit from public spending should bear the burden of the tax that pays for that spending

ability to pay principle

those with greater ability to pay a tax should pay more tax

property tax

a tax on the value of property, such as the value of a home

proportional tax (flat tax)

the same percentage of the tax base regardless of the taxpayer's income or wealth

sin taxes

discouraging undesirable behavior

General principle of economics of taxation

a measure of who really pays it

Two main reasons fir mix regressive and progressive

1. differences in levels of government
2.different taxes are based on different principles

In a well designed tax system there is

a trade off between equity and efficiency: system can be made more efficient by making it less fair

Federal tax

progressive,based on income

excise tax

A tax on sales of a good or service. Drives a wedge between the price paid by consumers and that received by producers, creating inefficiency.

excise tax burden falling on producers

The excise tax burden falls on producers when the price elasticity of demand his high and the price elasticity of supply is low because substitutes are readily available.

excise tax revenue

equal to the area of the rectangle whose height is the tax wedge between the supply and demand curves and whose width is the quantity transacted under the tax

administrative costs of a tax

the resources used by government to collect a tax, and by taxpayers to pay it, over and above the amount of the tax, as well as to evade it

deadweight loss and elasticity

Deadweight loss is larger when demand is elastic. Deadweight loss is smaller when demand is inelastic.

lump-sum tax

a tax that is the same for everyone, regardless of any actions people take

trade-off between equity and efficiency

the system can be made more efficient only by making it less fair

income tax

a tax on an individual's or family's income

payroll tax

a tax on the earnings an employer pays to an employee
-fixed or regressive

sales tax

a tax on the value of goods sold

profits tax

a tax on a firm's profits

wealth tax

a tax on an individual's wealth

progressive tax

a tax that takes a larger share of the income of high-income taxpayers than of low-income taxpayers

regressive tax

a tax that takes a smaller share of the income of high-income taxpayers than of low-income taxpayers

marginal tax rate

the percentage of an increase in income that is taxed away

FICA

a tax actually paid by workers, not by their employers
-national defense
-health care

Two principles of tax fairness

-the benefits principle
-ability to pay principle

Tax rate

the amount of tax levied per unit of whatever is being taxed
-dollar amounts
-some percentage

The incidence of an excise tax depends on..

the price elasticity of supply and the price elasticity of demand

wedge

excise tax drives a wedge between the price paid by consumers and the price received by producers( consumers pay more, producers receive less)

Tax competition

a state or local government that imposes high taxes on people with high incomes, people may move where taxes are lower

Every tax consists of two pieces

-base
-structure

state and local tax

regressive, same amount for everyone