18 - The art of taxation consist of so plucking the goose...

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The art of taxation consist of so plucking the goose to obtain the greatest amount of feathers with the least amount of hissing. - Colbert, Finance Minister to Louis XIV Late 1700’s • “Distortional taxes” reduce efficiency. – Colbert recognized that we need taxes to fund public items like schools, roads, police, armies. – And that this has an effect on net economic surplus. Mankiw Principles: #3. Rational people think at the margin. #4 People respond to incentives.
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0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 0 25 50 75 100 125 Million kL per Quarter Price $AU per kL Marginal (Private) Cost Marginal Benefit Marginal Private Cost = Marginal Benefit ( MPC = MB =0.75, Q=75)) No Externality ( Mankiw #3: Rational people think at the margin) (AKA Supply = Demand )
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Net Economic Surplus (NES): MC = MB = 0.75 Q M = 75 No Externality Net economic surplus (NES) = ½ B*H = ½(75*2.25) = $AU 84.375 million NES = Total Consumer Value – Total Producer Cost 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 0 25 50 75 100 125 Million kL per Quarter Price $AU per kL Marginal Private Cost Marginal Benefit
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0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 0 2 55 07 5 1 0 0
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This note was uploaded on 12/16/2009 for the course AEM 2500 taught by Professor Poe,g. during the Fall '07 term at Cornell University (Engineering School).

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18 - The art of taxation consist of so plucking the goose...

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