101-2011-L13

101-2011-L13 - Econ101 DistortingTaxation...

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Econ 101 Distorting Taxation Intertemporal Choice
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Reading n Today: n European Vacation (on the web) n Williamson, Chapter 8, pages 262-279 n Next time: n Williamson, Chapter 8, pages 279-291
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Competitive equilibrium with taxes § Simplified model: Pareto optimum Competitive equilibrium d zN Y = rate tax income labor ] 1 , 0 ( ) 1 ( - t w t w
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The model and the data Average annual hours worked, per worker
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The model and the data E. Prescott (2004). “Why Do Americans Work So Much More Than Europeans?
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The Laffer curve § The idea that high taxes discourage labor is important to  think about the optimal tax rate t Tax Revenue 0% 100% w t l h t )) ( ( Revenue Tax - =
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The Laffer curve: did it work? Federal Personal Taxes as a Percentage of GDP
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Intertemporal Choice
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Intertemporal Choice n No role for  savings investment government debt  in a static model n To study determinants of those, we  need more theory n Need to consider the choice of  consuming  today  versus  tomorrow   explicitly
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What is this useful for? 1. Economic Policy:  1. How should government finance its  expenditures? (debt vs. taxes) 2. The effects of Social Security on the  economy 2. Why is consumption less volatile than  GDP? 
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101-2011-L13 - Econ101 DistortingTaxation...

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