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CopyrightGruber
© 2010Fourth
WorthEdition
Publishers
Copyright © 2012 Worth Publishers 1 of 35
The Equity Implications of
Taxation: Tax Incidence 19
19.1 The Three Rules of Tax Incidence
19.2 Tax Incidence Extensions
19.3 General Equilibrium Tax Incidence
19.4 The Incidence of Taxation in the United States
19.5 Conclusion
PREPARED BY
Dan Sacks
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 2 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Tax Incidence
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 3 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
The Statutory Burden of a Tax Does Not Describe
Who Really Bears the Tax
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 4 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
The Statutory Burden of a Tax Does Not Describe
Who Really Bears the Tax
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 5 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Burden of the Tax on Consumers and Producers
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 6 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
The Statutory Burden of a Tax Does Not Describe
Who Really Bears the Tax, and Is Irrelevant to the
Tax Burden
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 7 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Gross versus After-Tax Prices
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 8 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Parties with Inelastic Supply or Demand Bear Taxes;
Parties with Elastic Supply or Demand Avoid Them
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 9 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Perfectly Inelastic Demand
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 10 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Perfectly Elastic Demand
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
General Case
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Supply Elasticities
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.1
Reminder: Tax Incidence Is About Prices, Not
Quantities
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 14 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Tax Incidence Extensions
To recap:
• The statutory burden of a tax does not describe
who really bears the tax.
• The side of the market on which the tax is imposed
is irrelevant to the distribution of tax burdens.
• Parties with inelastic supply or demand bear taxes;
parties with elastic supply or demand avoid them.
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Tax Incidence in Factor Markets
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Impediments to Wage Adjustment
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Impediments to Wage Adjustment
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Tax Incidence in Imperfectly Competitive Markets
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 19 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Background: Equilibrium in Monopoly Markets
Price
S= MC
A’
P1
B’
P2
A
B
Tax
D1
MR1
MR2 D2
0 Q2 Q1 Quantity
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright © 2012 Worth Publishers 20 of 35
CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Tax Incidence in Imperfectly Competitive Markets
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.2
Balanced Budget Tax Incidence
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
General Equilibrium Tax Incidence
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
Effects of a Restaurant Tax: A General Equilibrium
Example
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
General Equilibrium Tax Incidence
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
Effect of Time Period on Tax Incidence: Short Run
versus Long Run
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
Effect of Tax Scope on Tax Incidence
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.3
Spillovers between Product Markets
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.4
EVIDENCE: The Incidence of Excise Taxation
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.4
Incidence in the United States
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.4
Total Effective Tax Rate in the United States,
1979−2011
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.4
Top and Bottom Quintile’s Share of Income and Tax
Liabilities
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.4
Current vs. Lifetime Income Incidence
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CHAPTER 19 ■ THE EQUITY IMPLICATIONS OF TAXATION: TAX INCIDENCE
19.5
Conclusion
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