After reading this chapter, you should be able to: Identify the main categories of government spending and the main sources of government revenue; summarize the different philosophies regarding the distribution of a nation''s tax burden; explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes; demonstrate how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Trang 1Public Finance: Expenditures and
Taxes
Trang 2(1) Costs
RESOURCE MARKET
PRODUCT MARKET
(4) Goods and services
(7) Expenditures
(8) Resources
(9) Goods and services
(4) Goods and services
(10) Goods and services
Net taxes (12)
Net taxes (11)
(3) Consumption expenditures (3) Revenues
GOVERNMENT
(1) Money income (rents, wages, interest, profits)
(2) Land, labor, capital
Entrepreneurial ability (2) Resources
(5) Expenditures (6) Goods and services
Trang 3recession; high during growth
Trang 440 35 30 25 20 15 10 5
0
2009
1960
Government purchases
Government transfer payments
22%
15%
5%
Year
Government Finance
Government purchases, transfers, and total spending
as percentages of U.S output
Trang 5Federal Expenditures
Trang 6• Personal income tax
Federal Tax Revenues
Trang 7Local, State, and Federal Employment
Trang 8costs that taxes impose on society
Trang 9increase as income increases
declines as income increases
stays the same as income increases
Trang 10• Tax incidence
Tax Incidence and Efficiency Loss
Trang 11
14
12
10
8
6
4
2
5 10 15 20 25 Q
P
Quantity (Millions of Bottles Per Month)
S
D
S t
Tax $2
LO3
Elasticity and Tax Incidence
16-11
Trang 12Elastic Demand Inelastic Supply
Tax
a
b
c
a
b
0
Q 2
P 1
Q 1
P
P e
Smaller efficiency loss with inelastic demand
S t
S
D e
D i c
S
Tax S t
P 1 P
P b
Q 2 Q 1
P a
P
Elasticity and Tax Incidence
Trang 13D D
S
S
S t
S t
P 1
P a
P e
P 1
P b
P i
Q 1
a
a
b
b c
c
0
Q
Elasticity and Tax Incidence
Trang 14Quantity (Millions of Bottles Per Month)
S
D
S t
Tax $2
Tax paid
by consumers
5 10 15 20 25 Q
P
14
12
10
8
6
4
2
0
Tax paid
by producers
Efficiency loss (or deadweight loss)