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ECON 104

ECON 104. Week 7. Plan for Week 7. This PowerPoint presentation will provide a few insights on Chapters 9 and 10 of the Miller textbook. Chapter 9: The ( Dis )incentives of Higher Taxes Chapter 10: Bankrupt Landlords. Miller Textbook Chapter 9. The (Dis)incentives of Higher Taxes.

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ECON 104

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  1. ECON 104 Week 7

  2. Plan for Week 7 • This PowerPoint presentation will provide a few insights on Chapters 9 and 10 of the Miller textbook. • Chapter 9: The (Dis)incentives of Higher Taxes • Chapter 10: Bankrupt Landlords

  3. Miller TextbookChapter 9 The (Dis)incentives of Higher Taxes

  4. The 1991 Luxury Tax Blunder • Politicians are always looking for ways to raise taxes. • The luxury tax brought in very little revenue. • Laws of supply and demand apply to everyone—including the rich.

  5. Two Reasons for the Blunder • Elasticity of Demand • Elasticity of Supply • Static vs Dynamic Analysis

  6. Income Tax Rates • Up to 7% in 1913 (Book has it wrong.) • Up to 91% in 1964 • Up to 35% today

  7. What About Incentives? • Do lower rates mean more revenue? • Why? • Elasticity of Supply?

  8. And At the Bottom? • What about the incentive to take a job for low-income people? • Two Things Happen: • They lose welfare benefits. • They are taxed on their earnings.

  9. The Case of Ireland • Until about 1990: • 120% Effective Tax Rate at the bottom • Economy was is bad shape. • Today: • Maximum top corporate rate of 12.5% • Economy is booming.

  10. Summary • Perfectly Inelastic curves are a myth. • Rich and Poor alike are sensitive. • Higher tax rates no NOT equal Higher tax revenue.

  11. Miller – Chapter 10 Bankrupt Landlords

  12. A Shortage Situation P S Price Ceiling D Q Demand is greater than supply at the price ceiling.

  13. Consequences of Rent Controls • Shortage of rental units • Deterioration of existing units • Less construction of new units • Black market activity • Discrimination (non-price rationing) • Political maneuvering • Subletting

  14. Three Functions of Price • Allocating existing housing. • Promotion of efficient maintenance. • Stimulation of production. ---------------------------- • Price cannot do its work if it is not free to do so.

  15. Other Matters • What about moving under rent controls? • Are there incentives for landlords to make life unpleasant for tenant? • Laws that make evictions difficult? • What are the likely consequences of this?

  16. Who are the Losers from Rent Controls? • Landlords • Low-income people • People with pets • Elderly

  17. Are there any winners? • How do rent controls get approved? • What happens to the future supply of low-rent units of housing?

  18. Extra Reading: • For more reading on this issue, here is a nice piece from economist William Tucker http://www.cato.org/pubs/pas/pa-274es.html

  19. Thank you for viewing. • Dr. Glen Tenney • gten@gwmail.gbcnv.edu • 775-727-2009

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