Regulations, Taxation and Evaluation of Policy Flashcards
Forms of taxation
5 Desirable characteristics of any tax system
Distortionary effects of taxation with regard to economic efficiency
1) Behavioural effects of taxation
2) Financial effects of taxation
3) Organisational effects of taxation
4) Equilibrium effects
5) Announcement effects
Distortionary and non-distortionary taxation
Corrective taxation
Administrative costs of taxation
Flexibility of tax systems
Fairness of tax systems
1) Horizontal equity
2) Vertical equity
3) Income as a basis of taxation
4) Consumption as a basis of taxation
Frameworks for choosing tax systems
Pareto efficient system
Social Welfare Function
Utilitarianism
Rawlsian SWF
Tax Incidence
The incidence of a tax describes who actually bears the tax.
It does not depend on who writes the check to the government.
It makes no difference whether a commodity tax is levied on producers or consumers.
In a competitive market, the incidences of an ad valorem tax and an equivalent specific tax are identical.
Factors affecting incidence
1) Elasticity of demand and supply
2) Nature of competition
3) SR V. LR effects
4) Open V. Closed economy
5) Associated policy changes
- Differential tax analysis: one tax is substituted for another, keeping revenue constant.
- Balanced budget analysis: expenditure is changed as tax revenues change.
- Balanced growth analysis: a mix of policies which leaves capital accumulation unaffected.
Effect of tax at the firm level
Effect of tax on market equilibrium
Ad Valorem VS Specific taxes
Effect of elasticity
In competitive markets, incidence depends on the elasticity of demand and supply.
A commodity tax is not borne at all by consumers if the demand curve is perfectly elastic, or by producers if the supply curve is perfectly elastic.
It is borne completely by consumers if the demand curve is perfectly inelastic, or by producers if the supply curve is perfectly inelastic.
