EC 201 12-01-08 - o Recall tariffs Ch 5 Tax on imports...

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EC 201 12-01-08 “tax incidence” o Who really bears the burden of tax? o People try to reduce taxes o Tax on labor earnings →less work o Tax on sales →less expenditure o Tax on corporations →fewer corporations o True economic incidence of taxes o Not necessarily same as statutory incidence Legal Business income taxes may be borne o 1. Consumers (higher prices) Depends on market power o 2. Investors (lower dividends, lower stock prices, etc.) Include taxed companies, but also companies not taxed directly o 3. Workers (lower wages) If business tax→ less investment, in long run, less capital per worker →lower MRP of workers →lower wages “Business’s share of tax burden” Meaningless
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Businesses don’t pay taxes in a meaningful sense Only people pay taxes S+D analysis of tax income
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Unformatted text preview: o Recall tariffs Ch. 5 Tax on imports Elastic S, inelastic D o →buyers bear most of burden o Elastic S: reduce net price, I won’t supply o Inelastic D: increase gross price, may grumble, but still buy Inelastic S, elastic D→ sellers bear most of burden More inelastic side of mkt. bears rel. more of burden of tax • Payroll tax o 15.3% of labor earnings o Officially, 7.65% on employer, 7.65 % on employee o Probably, labor S more inelastic than labor D o If labor S more inelastic than labor D, workers will bear rel. more of burden of tax, regardless of statutory incidence • Revenue+ deadweight loss o Monopoly: Reduces Q below optimum Monopoly profit< lost cons. Surp. • Deadweight loss of tax o...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 12-01-08 - o Recall tariffs Ch 5 Tax on imports...

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