Lecture Public economics (5th edition) - Chapter 10: Introduction to taxation and tax equity

Learning outcome of chapter 10: List alternative sources of government revenue; define a tax and describe the structure of tax rates; distinguish between general and selective taxes, specific and ad valorem taxes, as well as direct and indirect taxes; list the properties of a good tax; explain what is meant by an equitable tax;...

• List alternative sources of government revenue

• Define a tax and describe the structure of tax rates

• Distinguish between general and selective taxes,

specific and ad valorem taxes, as well as direct and indirect taxes

• List the properties of a good tax

• Explain what is meant by an equitable tax

• Distinguish between the statutory and economic

burden of a tax

• Analyse the shifting of a tax and its impact on tax

incidence using both a partial and a general

equilibrium framework

• Tax

• User charges

– Prices charged for the delivery of certain public goods and services

– Examples: Toll roads, public swimming pools

• Administrative fees

– Definition of service/benefit is broad & imprecise

– Examples: TV licences, parking tickets

• Borrowing

• ‘Inflation taxation’

Type of Tax % Contribution of total tax

revenue for 2010/11

International trade and transactions 4.1%

Stamp duties and fees 0.001%

Tax bases

• Income

• Wealth

• Consumption

Tax rate

• Proportional

• Progressive

• Regressive

• Broad-based

• Taxes the entire tax base

products or only income

• Whole tax base is not taxed

• Example: cigarettes

• Specific/unit tax

– Levied per unit

– Example: Excise duties on sparkling wine

• Ad valorem

– Levied as a rate

– Typically imposed on ‘luxuries’ such as golf balls

• Direct

• Indirect

– Examples: excise and VAT.

• Generate sufficient revenue to finance budgeted

government expenditure

• Equitable

• Economically efficient

• Administratively efficient

• Flexible

• Tax equity principle

• Ability-to-pay principle

– Vertical equity

• Benefit principle

• Statutory

• Economic

• Balanced-budget

• Differential tax

• Partial equilibrium framework

• General equilibrium framework

Incidence of a unit tax on consumption imposed on the supply side or the demand side