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Taxes, Social Insurance, and Income Distribution

21. Taxes, Social Insurance, and Income Distribution. Public Policy. Chpt 19. Addressing externalities Providing public goods, maintaining common resources Taxes, poverty, & income redistribution. Chpt 20. Chpt 21. 28. 27. 26. 25. 24. Price ($). 23. 22. 21. 20. 1. 2. 3. 4.

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Taxes, Social Insurance, and Income Distribution

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  1. 21 Taxes, Social Insurance, and Income Distribution Public Policy Chpt 19 • Addressing externalities • Providing public goods, maintaining common resources • Taxes, poverty, & income redistribution Chpt 20 Chpt 21

  2. 28 27 26 25 24 Price ($) 23 22 21 20 1 2 3 4 5 6 7 Quantity (100s) Producer and Consumer Surplus • Efficient if there are no market failures.

  3. 28 27 26 25 24 Price ($) 23 22 21 20 1 2 3 4 5 6 7 Quantity (100s) • An excise tax creates deadweight loss (inefficiency). Excise Tax Price: Quantity: $3

  4. 28 27 26 25 24 Price ($) 23 22 21 20 1 2 3 4 5 6 7 Quantity (100s) • If demand is more elastic… Excise Tax

  5. 28 27 26 25 24 Price ($) 23 22 21 20 1 2 3 4 5 6 7 Quantity (100s) • … smaller price change but greater deadweight loss Excise Tax Price: Quantity: $3

  6. Federal Taxes Quintile Average family income Average tax rate Lowest $14,900 5.4% Highest $182,700 26.8% Equity in Taxes Benefits Principle Ability-to-Pay Principle

  7. Equity vs. Efficiency Rent control Free parking at Regis Income tax? Lump-sum tax vs. Property tax • Do high marginal tax rates discourage productive activity?

  8. 40 35 30 25 20 15 Taxes ($000s) 10 5 50 5 30 10 20 40 60 Income ($000s) 80 100 Progressive & Regressive Taxes Average tax rate: Marginal tax rate: Average tax rate: Marginal tax rate:

  9. 40 35 30 25 20 15 Taxes ($000s) 10 5 20 15 30 40 20 40 60 Income ($000s) 80 100 Progressive & Regressive Taxes Average tax rate: Marginal tax rate: Average tax rate: Marginal tax rate:

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