Chapter 7 Flashcards
(30 cards)
Excise tax
- A tax on sales of a good or service
incidence
- a mesaure of who really pays it
What does the incidence of an excise tax depend on?
The price elasticity of supply and the price elasticity of demand
Where does the burden fall when price elasticity of demand is low and of supply is high with excise taxes?
Falls mainly on consumers
Where does the burden fall when the price elasticyt of demand is high and supply is low?
The burden of an excise tax falls mainly on producers
Tax revenue =
Area of shaded rectangle
tax rate
- amount of tax people are required to pay per unit of whatever is being taxed
sin taxes
Taxes created to discourage undesirable behavior
administrative costs
- the resources used by government to collect the tax, and by taxpayers to pay it, over and above the amount of the tax, as well as to evade it.
The larger the number of transactions that are prevented by the tax…
The larger the deadweight loss
Two principles of tax fairness:
- Benefits principle
- Ability-to-pay principle
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
lump-sum tax
- a tax that is the same for everyone, regardless of any actions people take.
- better than other taxes at promoting economic efficiency
Trade-off between equity and effiency:
The system can be made more efficient only by making it less fair, and vice versa
Part of a well-designed tax system
Tax base
the measure or value, such as income or property value, that determines how much tax an individual or firm pays
Tax structure
Specifies how the tax depends on the tax base
Income tax
A tax that depends on the income of an individual or family from wages and investments
Payroll tax
A tax that depends on the earnings an employer pays to an employee
Sales tax
A tax that depends on the value of goods sold (excise tax)
Profits tax
A tax that depends on a firm’s profits
Property tax
A tax that depends on the value of property, such as the value of a home
Wealth tax
a tax that depends on an individual’s wealth
