EC 201 12-3-08 - o Most states have sales taxes most tax...

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EC 201 12-3-08 Review session 3:15 to 4:45 Friday Revenue and efficiency o All else equal need to raise revenue o All else equal less excess burden o Less elastic/more inelastic More revenue Less. Exc. Burden o Low e.b. per $ of rev. is good! o Taxing activities that aren’t very elastic o In U.S., much of tax is on labor earnings o Question for public: should we build a bridge? Costs include: wages, steel, concrete, cranes } explicit out of pocket costs But also, bridge is financed by taxes→ additional excess burden “ marginal excess burden” MEB: <0 for Pigouvian taxes ~10% for labor taxes ~50% for corporate taxes Overall: Bernanke 20% out of pocket cost of bridge = $1 billion True social cost= $1 B (1+MEb) = $1.2 B Conclusions: o 1. May approve fewer projects when we consider excess burden o 2. All else equal, seek revenue sources w. lower excess burden
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Unformatted text preview: o Most states have sales taxes; most tax few services Currently in Michigan 6% on some things 0% on others Better: 4% on everything o Most taxes are % of $ value Beer + wine taxes are unit taxes: fixed $/Q eroded by inflation Beer tax same since 1962 Better: % basis • Poverty and income dist. o Labor earnings are biggest part o Most households- labor earnings are all or nearly all o Quintile= 20% of pop. o Family: >1 related living together o Households: families + single + unrelated individually o Early 20 th century: big equalization o ↑ in educational attainment o 1950-1975 remarkable stability in US income distribution o Since 1975 big disequalizatioin increased inequality o ↑ in D for highly skilled labor o ↓ in strength of unions...
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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 12-3-08 - o Most states have sales taxes most tax...

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