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    Public Choice Theory and The Economics of Taxation

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    alyannahhidago
    The document discusses several key concepts from public choice theory and the economics of taxation. It covers how majority voting can result in inefficient outcomes, issues with interest groups and logrolling, and the median voter model. It also examines government failure through special interests and rent-seeking. Different types of taxes are outlined including how tax incidence depends on elasticity, and how the burden of excise taxes may fall on consumers or producers. The document analyzes progressive, regressive and proportional taxes.

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    Public Choice Theory and The Economics of Taxation

    Uploaded by

    alyannahhidago
    25 views14 pages
    The document discusses several key concepts from public choice theory and the economics of taxation. It covers how majority voting can result in inefficient outcomes, issues with interest groups and logrolling, and the median voter model. It also examines government failure through special interests and rent-seeking. Different types of taxes are outlined including how tax incidence depends on elasticity, and how the burden of excise taxes may fall on consumers or producers. The document analyzes progressive, regressive and proportional taxes.

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    microecon 09.pptx

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    The document discusses several key concepts from public choice theory and the economics of taxation. It covers how majority voting can result in inefficient outcomes, issues with interest groups and logrolling, and the median voter model. It also examines government failure through special interests and rent-seeking. Different types of taxes are outlined including how tax incidence depends on elasticity, and how the burden of excise taxes may fall on consumers or producers. The document analyzes progressive, regressive and proportional taxes.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    25 views14 pages

    Public Choice Theory and The Economics of Taxation

    Uploaded by

    alyannahhidago
    The document discusses several key concepts from public choice theory and the economics of taxation. It covers how majority voting can result in inefficient outcomes, issues with interest groups and logrolling, and the median voter model. It also examines government failure through special interests and rent-seeking. Different types of taxes are outlined including how tax incidence depends on elasticity, and how the burden of excise taxes may fall on consumers or producers. The document analyzes progressive, regressive and proportional taxes.

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    You are on page 1of 14

    Public Choice

    Theory and the


    Economics of
    Taxation
    Majority Voting
    • Can result in inefficiency
    – Over or underproduction of a public
    good
    – Individuals think only of themselves
    – Strength of preferences ignored
    • Interest groups
    • Logrolling
    Majority Voting
    • Paradox of voting
    – Paired choice majority voting
    – Flawed procedure
    – Outcome depends on vote order
    • Median voter model
    – Politicians appeal to the middle
    – Extremes pick the middle
    – Implications
    Government Failure
    • Special-interest effect
    – Pork-barrel politics
    • Rent-seeking behavior
    • Clear benefits, hidden costs
    • Limited and bundled choice
    • Bureaucracy and inefficiency
    • Imperfect institutions
    The Tax Burden
    • How should the tax burden
    be apportioned?
    • Benefits-received principle
    • Ability-to-pay principle
    • Progressive tax
    • Regressive tax
    • Proportional tax
    Types of Taxes
    • Personal income tax
    • Sales tax
    • Corporate income tax
    • Payroll tax
    • Property tax
    Tax Incidence
    • Who really pays the tax?
    • Excise tax
    – Tax burden depends on elasticity
    – Inelastic vs. elastic
    • Efficiency loss of an excise tax
    – Deadweight loss
    – Depends on elasticity
    – Transfer of surplus to govt.
    Tax Incidence of an Excise Tax
    P
    St
    14

    S
    12
    Tax P2
    Price (Per Bottle)

    10

    4
    D
    2

    0 5 10 15 20 25 Q
    Quantity
    (Millions of Bottles Per Month)
    Tax Incidence
    • Why impose an excise tax?
    – Discourage consumption
    – Redistributive goals
    – Reduce negative externality
    • Burden of the excise tax?
    – Depends on elasticity
    – Availability of substitutes
    Tax Incidence and Elasticity
    Smaller efficiency loss with inelastic demand
    P P
    St St
    Tax Tax
    S S
    a Pi
    Pe a
    P1 b
    P1 b
    De Pb
    Pa c
    c

    Di
    0 Q2 Q1 Q 0 Q 2 Q1 Q
    Tax Incidence and Tax Incidence and
    Elastic Demand Inelastic Demand
    Tax Incidence and Elasticity
    Smaller efficiency loss with inelastic supply
    P P
    St S

    Tax Tax
    St
    a
    Pe S a
    Pi
    P1 b P1 b
    Pa
    c
    Pb c
    D D
    0 Q2 Q1 Q 0 Q 2 Q1 Q
    Tax Incidence and Tax Incidence and
    Elastic Supply Inelastic Supply
    Efficiency Loss of a Tax
    P
    S’
    14
    Tax Paid by
    Consumers S
    12
    Tax P2
    Price (Per Bottle)

    10

    6
    Efficiency
    4 Loss (or
    Tax Paid by Deadweight D
    2 Producers Loss)

    0 5 10 15 20 25 Q
    Quantity
    (Millions of Bottles Per Month)
    Incidence of Taxes
    • Workers bear full burden of:
    – Social security tax
    – Medicare tax
    – Income tax
    • Burden of corporate income tax:
    – Stockholders (short run)
    – Workers (long run)
    Philippine Tax Structure
    • tax system progressive
    • State and local system is
    regressive progressive
    • Overall tax structure slightly
    progressive

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