Chapter 12-Taxation and Income distribution Public economics
1 Chapter 12 – Taxation and Income Distribution Public Economics
Introduction Many policies center around whether the tax burden is distributed fairly Not as simple as analyzing how much in taxes each person actually paid, because of tax-induced changes to price
2 Introduction • Many policies center around whether the tax burden is distributed fairly. • Not as simple as analyzing how much in taxes each person actually paid, because of tax-induced changes to price
Introduction Two main concepts of how a tax is distributed Statutory incidence - who is legally responsible for tax Economic incidence -the true change in the distribution of income induced by tax These two concepts differ because of tax shifting
3 Introduction • Two main concepts of how a tax is distributed: – Statutory incidence – who is legally responsible for tax – Economic incidence – the true change in the distribution of income induced by tax. – These two concepts differ because of tax shifting
Tax Incidence: General Remarks Only people can bear taxes Business paying their fair share simply shifts the tax burden to different people Can study people whose total income consists of different proportions of labor earnings, capital income, and so on Sometimes appropriate to study incidence of a tax across regions
4 Tax Incidence: General Remarks • Only people can bear taxes – Business paying their fair share simply shifts the tax burden to different people – Can study people whose total income consists of different proportions of labor earnings, capital income, and so on. – Sometimes appropriate to study incidence of a tax across regions
Tax Incidence: General Remarks Both sources and uses of income should be considered Tax affects consumers, workers in industry, and owners Economists often ignore the sources side
5 Tax Incidence: General Remarks • Both Sources and Uses of Income should be considered – Tax affects consumers, workers in industry, and owners – Economists often ignore the sources side