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Unformatted text preview: Chapter 8: Costs of Taxation Do taxes reduce the value of markets to society even after including tax revenue? Generally, yes Main argument for small government because taxation shrinks size of economic pie to be distributed. Thus efficiency is impaired as the cost of more equity Recall: Taxes on goods and services shift S and/or D curves left depending on levy. Dont need to show actual curve(s) shifting Price rises to buyers Price falls for sellers Q falls until (PD-PS) = tax Tax wedge between PD and PS, levy is irrelevant What effect does tax have on benefit of market participation Now 3 participants Buyers Sellers Government For buyers CS falls For sellers PS falls For government tax revenue rises Dead weight loss of taxation unless S and/or D are totally inelastic...
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- Spring '07