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1、CHAPTER 15Taxation and EfficiencyCopyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin15-2Excess Burden DefinedPounds of corn per yearPounds of barley per yearE1B1C1DFACbCaB0Government levies tax on barleyi15-3Effect of Tax on Consumption BundlePounds of corn per ye
2、arPounds of barley per yearE1B1C1DFACbCaB0E2iiiG15-4Excess Burden of the Barley TaxPounds of corn per yearPounds of barley per yearE1B1C1DFACbCaB0E2iiiGHB3MITax RevenuesEquivalent variation15-5Questions and AnswersIf lump sum taxes are so efficient, why arent they widely used?Are there any results f
3、rom welfare economics that would help us understand why excess burdens arise?15-6Questions and AnswersDoes an income tax entail an excess burden?15-7Questions and AnswersPounds of corn per yearPounds of barley per yearC1DFACbCaB1 = B2E2iiiE1JB3RKIf the demand for a commodity does not change when it
4、is taxed, does this mean that there is no excess burden?S Uncompensated response Income effect Substitution effect -compensated effect Compensated demand curve15-8Excess Burden Measurement with Demand CurvesPounds of barley per yearPrice per pound of barleyaDbSbq1q2ihSbPb(1 + tb)PbgfdTax revenuesExc
5、ess burden of taxExcess burden = Pbq1tb215-9Preexisting DistortionsTheory of the Second BestDouble-dividend hypothesis15-10Excess Burden of a SubsidyHousing services per yearPrice per unit of housing servicesmDhShh2h1uqSh(1 s)PhPhnorExcess burdenv15-11Excess Burden of Income TaxationHours per yearWa
6、ge rate per hourSLL1L2ag(1 t)wwfihExcess burdendExcess burden = L1t215-12The Allocation of Time Between Housework and Market Work$00Hours worked inhome per yearHours worked inmarket per yearH*w1w1VMPhomeVMPmkt(1 t)VMPmktH1abecdw2(1 t)w2Excess burden = (H)tw215-13Does Efficient Taxation Matter?Why no
7、 excess burden budget?Is efficiency the primary objective of government policy?Does excess burden mean a tax is bad?15-14Appendix A Formula for Excess BurdenA = * base * height = * (di) * (fd)fd = Pb = (1 + tb) * Pb Pb = tb * Pbdi = q = (q/Pb)(Pb/q)q = (q/Pb)Pbsince Pb = tb * Pbq = (q/Pb)*(tbPb) = * q * tbsince di = qA = (di)(fd) = (qtb)*(tbPb) = * * Pb * q * (tb)215-15Appendix B Multiple Taxes and the Theory of the Second BestGallons of gin per yearGallons of rum per yearPrice per gallon of ginPrice per gallon of rumDgDrg1PgDrPr(1 + tr)Prr1r2r3abcghdg2ef(1 + tg)Pg
