Lecture3a.ppt

# Lecture3a.ppt - Lecture 3: Measuring Efficiency Costs of...

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Unformatted text preview: Lecture 3: Measuring Efficiency Costs of Taxes Overview of the Economic Analysis of Tax Structures Tax incidence studies potentially yield detailed information on the extent to which each type of individual ends up bearing a tax Incidence often unclear, however, since need to know the full structure of the economy Economists then focus on an effect of tax structures that is more easily measured: efficiency cost Supplemented with limited information about distributional effects Outline of Lecture Definition of efficiency loss or excess burden Determination of size: graphical Determination of size: algebraic Ramseys rule Implications of preexisting distortions Theory of the second best Definition of excess burden Sum of dollar-equivalent losses to individuals minus revenue gain to the government Synonyms: Efficiency loss, deadweight loss A D 1 S 1 S 2 B Q 2 = 90 \$1.00 Price per gallon ( P ) Quantity in billions of gallons (Q) C E Q 1 = 100 D F Consumer Loss A D 1 S 1 S 2 B Q 2 = 90 \$1.00 Price per gallon ( P ) Quantity in billions of gallons (Q) C E Q 1 = 100 D F Producer Loss A D 1 S 1 S 2 B Q 2 = 90 \$1.00 Price per gallon ( P ) Quantity in billions of gallons (Q) C E Q 1 = 100 D F Total Private Loss A D 1 S 1 S 2 B Q 2 = 90 \$1.00 Price per gallon ( P ) Quantity in billions of gallons (Q) C E Q 1 = 100 D F Tax Revenue A D 1 S 1 S 2 B Q 2 = 90 \$1.00 Price per gallon ( P ) Quantity in billions of gallons (Q) C E Q 1 = 100 D F Excess Burden...
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## Lecture3a.ppt - Lecture 3: Measuring Efficiency Costs of...

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