Sources of Government Revenue Notes - Sources of Government...

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Sources of Government Revenue Notes How much?? $11,800 in taxes collected (on average) for each person in U.S. $3.3 trillion on all 3 levels of government Economic Impact of Taxes Support government operations Impact – cont. Reduce individual & business revenue Impact – cont. Affects productivity & growth of economy Resource Allocation Taxes raise production cost – people buy less Shifts supply curve to left Behavior Adjustment Sin tax  relatively high tax designed to raise revenue and decrease consumption of a socially undesirable product Productivity and Growth Taxes may reduce incentive to work (individual) or expand production (business) Affects savings and investment The incidence of a tax final burden of the tax If demand is inelastic, it falls on consumers See fig. 9.2, page 225 1991 tax on luxury aircraft – who did the tax fall on? Example 3 Criteria for Taxes
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Equity Simplicity Efficiency Equity What is fair?
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