Chap019 - Chapter 19 Taxes on Consumption and Wealth...

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Chapter 19 – Taxes on Consumption and Wealth Chapter 19 – Taxes on Consumption and Wealth 1. The market value of Microsoft is a stock figure. Gross domestic product is a flow figure. It makes no sense to compare them directly. One way to make a sensible comparison would be to convert the market value of Microsoft into a flow, i.e., compute the stream of income that could be generated annually by $500 billion of wealth. Using a rate of return of 10% for convenience, this gives us $50 billion per year, considerably below Spain's GDP. 2. The statement is misleading because it ignores the business part of the Hall-Rabushka tax. Capital incomes are generated by businesses; effectively, the H-R tax captures this income at its source. Note, however, that investment expenditures are expensed under the H-R proposal. Hence, only returns to capital in excess of normal returns are taxed. 3. There is a fundamental confusion here. There is no reason to assume that the incidence of a general consumption tax (a VAT) will be the same as the incidence of a partial factor tax (corporate income tax). 4.
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This note was uploaded on 12/18/2010 for the course ECON 2003 taught by Professor Tong during the Fall '10 term at Uni. Southampton.

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Chap019 - Chapter 19 Taxes on Consumption and Wealth...

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