101 lecture 12
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Microeconomics Lecture 12 Tax Systems
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Lecture 12 Taxation
Transcript of 101 lecture 12
Microeconomics Lecture 12
!
Tax Systems
Key Terms
Key Termsaverage tax rate marginal tax rate lump-sum tax benefits principle ability-to-pay principle proportional tax regressive tax progressive tax !
Tax System
Tax SystemTwo Objectives:
Efficient and Equitable Lower costs and fair
Avoid
Avoiddeadweight loss
administrative burdens !
Efficient? low deadweight loss and low
administrative burdens
Efficient?
Efficient?low deadweight loss
and low administrative burdens
Administrative Burden
Administrative Burden
It costs time and money to collect
taxes
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100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax Analysis
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Demand
Supply with no tax
Buyer Surplus
Tax Analysis
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Demand
Supply with no tax
Buyer Surplus
Seller Surplus
Tax Analysis
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Demand
Supply with no tax
Tax Analysis
Tax on Seller with shift Supply curve up by the amount of the tax
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0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax Analysis
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
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0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax Analysis
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
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40
40
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0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
40
40
40
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0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
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100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Taxes Tax of 40 SAR
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100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply with no tax
Loss of 160 in surplus !
120 in taxes !
40 to deadweight loss !
25 percent loss to deadweight
Tax AnalysisSupply
with 40 SAR tax
Tax on Seller with shift Supply curve up by the amount of the tax
Taxes Tax of 40 SAR
Incentives
Incentivestaxes distort
change behavior !
Type of Taxes
Type of TaxesIncome - Earn
Consumption - Spend
Are Taxes Fair?
Are Taxes Fair?
Benefits !
Ability to Pay
Benefits
Benefits
You should pay for the benefits you
receive !
Ability
Ability
If you are able you should pay more
Tradeoffs
Tradeoffs
Fair or Efficient?
Income Tax Rates
Income Tax RatesLump-Sum
Proportional Progressive Regressive
Lump Sum
Lump Sum
Pay a fixed amount regardless of income
Proportional
Proportional
Pay a fixed rate regardless of income
Progressive
Progressive
Pay an increasing rate
as income increases
Regressive
Regressive
Pay a decreasing rate
as income increases
Rates
Rates
Average Marginal
Average
Average
total taxes divided by
income
Marginal
Marginal
extra tax on the next riyal of
income
10% on first 100 30% on the next 100 then 50% above
Marginal
10%
30%
50%
Tax Rate
Tax Rate Income
Tax Rate Income Tax
Tax Rate Income Tax
First 100
Tax Rate Income Tax
First 100 10%
Tax Rate Income Tax
First 100 10% 100
Tax Rate Income Tax
First 100 10% 100 10
Tax Rate Income Tax
First 100 10% 100 10
101 to 200
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30%
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50%
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?Total taxes divided by total income
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate? 90 ÷ 300 = 30%Total taxes divided by total income
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate? 90 ÷ 300 = 30%
30%
Total taxes divided by total income
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate? 90 ÷ 300 = 30%
30%
Total taxes divided by total income
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?
What is the marginal rate?
90 ÷ 300 = 30%
30%
Total taxes divided by total income
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?
What is the marginal rate?
90 ÷ 300 = 30%
30%
Total taxes divided by total income
Rate on the next riyal
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?
What is the marginal rate?
90 ÷ 300 = 30%
30%
Total taxes divided by total income
Rate on the next riyal
Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
What is the average rate?
What is the marginal rate?
90 ÷ 300 = 30%
50%
30%
Total taxes divided by total income
Rate on the next riyal
0
25
50
75
100
First 100 Second 100 Third 100
Incentives Matter
Incentives MatterChange the rates
!
Change behavior
Laffer Curve
Art Laffer
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
Dropped Top Marginal Income Tax Rate from 70% to 28%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
Dropped Top Marginal Income Tax Rate from 70% to 28%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
Dropped Top Marginal Income Tax Rate from 70% to 28%
Income above $200,000
1980 70% Rate
Income above $200,000
1980 70% Rate
Income above $200,000
1980 70% Rate
$36 billion - $19 billion
Income above $200,000
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
$352 billion - $100 billion
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
$352 billion - $100 billion
Pie x 8.7 Taxes x 4.2
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
$352 billion - $100 billion
Pie x 8.7 Taxes x 4.2
Smaller slice of a larger pie
