Economics Notes
1 hour test
10 multiple choice short answers and problems
-open book
-access to computer
*****Access to answers from problem sets on internet
Review Session Sunday Oct 14 at 5-630 pm in sturm
Taxation
1 – to create revenue to pay for government expenditures.
-public goods and/or public service characteristics: private goods – individual public goods – joint (collective)
private good is non excludable in consumption
2 – redistribute income/ wealth
3 – affect behavior goods that have social implications
tax revenue = price x quantity = tax price x tax quantity = tax rate x tax base
Tax base > income, sales, property, capital gains/loses
What is a good tax system?
1 – distribution of tax burden should be fair > tax equity
2 – tax system should improve the smallest excess burden and should minimize distortions to economic behavior > tax efficiency
3 – administration should be easy and administrative costs should be as low as possible
4 – tax system should be easy to understand and relatively easy to comply with and it should be applied in a non-arbitrary way
5 – tax system should generate required revenues
tax evasion – not paying your taxes tax avoidance – using existing tax rules (code) to be able to minimize your tax burden. -use existing law to your advantage, the best you can
Tax Equity – two principles:
1 – Benefit Principle – impose taxes in a way that reflects the benefit from using a public good or service. A toll set to pay for the benefits received from public good/service. Cannot use it for redistribution
2 – Ability to pay principle – impose taxes by determining a base. Charge taxes based on ppls ability to pay their part of the base > horizontal and vertical equity
horizontal equity – treat equals equally. If you have the same income (base), same level of taxes vertical equity – treat unequal’s unequally. If you have a greater ability of a base then you pay greater amounts of taxes
10 multiple choice short answers and problems
-open book
-access to computer
*****Access to answers from problem sets on internet
Review Session Sunday Oct 14 at 5-630 pm in sturm
Taxation
1 – to create revenue to pay for government expenditures.
-public goods and/or public service characteristics: private goods – individual public goods – joint (collective)
private good is non excludable in consumption
2 – redistribute income/ wealth
3 – affect behavior goods that have social implications
tax revenue = price x quantity = tax price x tax quantity = tax rate x tax base
Tax base > income, sales, property, capital gains/loses
What is a good tax system?
1 – distribution of tax burden should be fair > tax equity
2 – tax system should improve the smallest excess burden and should minimize distortions to economic behavior > tax efficiency
3 – administration should be easy and administrative costs should be as low as possible
4 – tax system should be easy to understand and relatively easy to comply with and it should be applied in a non-arbitrary way
5 – tax system should generate required revenues
tax evasion – not paying your taxes tax avoidance – using existing tax rules (code) to be able to minimize your tax burden. -use existing law to your advantage, the best you can
Tax Equity – two principles:
1 – Benefit Principle – impose taxes in a way that reflects the benefit from using a public good or service. A toll set to pay for the benefits received from public good/service. Cannot use it for redistribution
2 – Ability to pay principle – impose taxes by determining a base. Charge taxes based on ppls ability to pay their part of the base > horizontal and vertical equity
horizontal equity – treat equals equally. If you have the same income (base), same level of taxes vertical equity – treat unequal’s unequally. If you have a greater ability of a base then you pay greater amounts of taxes