CopyrightGruber
2010 Fourth
WorthEdition
Publishers
Copyright 2012 Worth Publishers
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19
Dan Sacks
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Tax Incidence
1960
44.5%
2008
43.7%
22.8
17.0
12.8
11.3
37.8
2.6
2.9
4.5
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
19.1
Price per
gallon (P)
Consum
er
burden
=
Producer
$0.30
burden =
$0.20
P2 = $2.00
P3 = $1.80
P1 = $1.50
Tax =
$0.50
S
2
$1.30
A
E
D
C
(b) Tax on
consumers
Price per
gallon (P)
Consum
er
burden
=
Producer
$0.30
burden =
$0.20
$1.80
P1 = $1.50
P3 = $1.30
P2 = $1.00
A
C
D
Tax =
B $0.50
D
0
Q2 =
80
Q3 =
90
Q1 = Quantity in
100
billions of
gallons (Q)
D
0
D
1
Q1 = Quantity
2
in
100 billions of
gallons (Q)
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
General Case
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Supply Elasticities
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.1
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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.
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
19.2
Wage
(W)
(a) Tax on
workers
Tax =
$1.00
S
1
B
A
WM = $7.25
Worker
burden
=
$0.50
Wage
(W)
Firm
burden
=
$0.50
W2 = $7.75
W3 = $6.75
(b) Tax on
firms
Firm
burden
=
$1.00
W2 = $8.25
WM = $7.25
S
B
$6.7
5
A
C
Tax =
$1.00
D
0
H2
H1
Hours of
labor (H)
D
0
H3
H2
H1
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
D
1
Hours of
labor (H)
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
19.2
Tax
MR
0
Q1
MR
1
D1
D2
Quantity
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.2
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.3
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Consider a tax on restaurant. A higher aftertax price has three effects on other goods as
well:
1. Income effect from lower real income.
2. Substitution effect toward goods that are
substitutes for restaurants.
3. Complementary effect: Consumers may
reduce their consumption of goods or
services that are complements to
restaurant meals.
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.4
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.4
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.4
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
All
households
Bottom
quintile
Top quintile
1979
1990
2000
201
1
22.2%
21.5%
23.0% 18.6
%
8.0
8.9
6.4
1.1
27.5
25.1
28.0
23.8
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
19.4
200
0
2012
49.5
%
54.8
%
56.2
%
56.4
57.9
Bottom Quintile
66.6
70
3.9
1.1
3.6
0.3
Top Quintile
Share of income
Share of tax
Share of income
Share of tax
45.5
%
4.8
2.1
4.6
1.9
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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19.4
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
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19.5
C H AP T E R 1 9 T H E E Q U I T Y I M P L I C AT I O N S O F TAXAT I O N : TAX I N C I D E N C E
Conclusion
Public Finance and Public Policy Jonathan Gruber Fourth Edition Copyright 2012 Worth Publishers
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