101 lecture 12
DESCRIPTION
Lecture 12 TaxationTRANSCRIPT
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Microeconomics Lecture 12
!
Tax Systems
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Key Terms
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Key Termsaverage tax rate marginal tax rate lump-sum tax benefits principle ability-to-pay principle proportional tax regressive tax progressive tax !
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Tax System
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Tax SystemTwo Objectives:
Efficient and Equitable Lower costs and fair
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Avoid
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Avoiddeadweight loss
administrative burdens !
Efficient? low deadweight loss and low
administrative burdens
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Efficient?
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Efficient?low deadweight loss
and low administrative burdens
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Administrative Burden
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Administrative Burden
It costs time and money to collect
taxes
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Demand
Supply with no tax
Tax Analysis
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Supply with no tax
Buyer Surplus
Tax Analysis
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Buyer Surplus
Seller Surplus
Tax Analysis
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Supply with no tax
Tax Analysis
Tax on Seller with shift Supply curve up by the amount of the tax
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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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Supply with no tax
Tax Analysis
Tax on Seller with shift Supply curve up by the amount of the tax
Tax of 40 SAR
40
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40
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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
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40
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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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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
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Incentives
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Incentivestaxes distort
change behavior !
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Type of Taxes
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Type of TaxesIncome - Earn
Consumption - Spend
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Are Taxes Fair?
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Are Taxes Fair?
Benefits !
Ability to Pay
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Benefits
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Benefits
You should pay for the benefits you
receive !
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Ability
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Ability
If you are able you should pay more
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Tradeoffs
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Tradeoffs
Fair or Efficient?
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Income Tax Rates
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Income Tax RatesLump-Sum
Proportional Progressive Regressive
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Lump Sum
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Lump Sum
Pay a fixed amount regardless of income
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Proportional
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Proportional
Pay a fixed rate regardless of income
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Progressive
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Progressive
Pay an increasing rate
as income increases
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Regressive
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Regressive
Pay a decreasing rate
as income increases
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Rates
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Rates
Average Marginal
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Average
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Average
total taxes divided by
income
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Marginal
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Marginal
extra tax on the next riyal of
income
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10% on first 100 30% on the next 100 then 50% above
Marginal
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10%
30%
50%
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Tax Rate
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Tax Rate Income
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Tax Rate Income Tax
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Tax Rate Income Tax
First 100
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Tax Rate Income Tax
First 100 10%
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Tax Rate Income Tax
First 100 10% 100
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Tax Rate Income Tax
First 100 10% 100 10
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30%
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50%
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300
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Tax Rate Income Tax
First 100 10% 100 10
101 to 200 30% 100 30
more than 200 50% 100 50
Summary 300 90
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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?
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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
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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
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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
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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
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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
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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
![Page 90: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/90.jpg)
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
![Page 91: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/91.jpg)
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
![Page 92: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/92.jpg)
0
25
50
75
100
First 100 Second 100 Third 100
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Incentives Matter
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Incentives MatterChange the rates
!
Change behavior
![Page 95: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/95.jpg)
Laffer Curve
Art Laffer
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
![Page 103: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/103.jpg)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
![Page 104: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/104.jpg)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$ Tax
Revenue
No Revenue
Maximum Revenue
Tax Rate
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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%
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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%
![Page 107: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/107.jpg)
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%
![Page 108: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/108.jpg)
Income above $200,000
![Page 109: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/109.jpg)
1980 70% Rate
Income above $200,000
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1980 70% Rate
Income above $200,000
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1980 70% Rate
$36 billion - $19 billion
Income above $200,000
![Page 112: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/112.jpg)
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
![Page 113: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/113.jpg)
1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
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1980 70% Rate
1988 28% Rate
$36 billion - $19 billion
Income above $200,000
$352 billion - $100 billion
![Page 115: 101 lecture 12](https://reader033.vdocuments.net/reader033/viewer/2022060122/55953a5e1a28ab90098b45a0/html5/thumbnails/115.jpg)
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
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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