Final Topics - After MT3 • Taxes • Trade Taxes • Tax...

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Unformatted text preview: After MT3 • Taxes • Trade Taxes • Tax base, tax rate structure • Taxes on stocks vs. taxes on flows (most taxes are on flows – income, sales, etc) • Progressive, regressive, proportional taxes. • Marginal vs. average tax rate. • Tax incidence: who pays the tax? • Burden of a tax: taxes cause deadweight loss or burden because they distort people’s behavior. – Taxes usually move us away from efficiency. – Taxes move us toward efficiency if there is a negative externality. • Neutrality – more “neutral” taxes create less distortion and are better. S t S D’ S t S D • Effects of price elasticity of D on tax incidence 3 $0.20 Tax Price per ounce $1.15 1.00 0.95 Millions of ounces per day 10 9 $0.20 Tax 10 7 Price per ounce $1.05 1.00 0.85 (a) Less elastic demand (b) More elastic demand The more elastic the D curve, the more tax is paid by producers (lower net-of-tax receipt) • Effects of price elasticity of S on tax incidence 4 S t ’ S’ D’’ $0.20 Tax$0....
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Final Topics - After MT3 • Taxes • Trade Taxes • Tax...

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