Economic Role of Government Provide Public Goods Promote Competition Redistribute Income Correct Market Failures

Government Tools Fiscal Policy Monetary Policy Taxing Spending Regulate the Money Supply Control Interest Rates

Types of Taxes Income Other Types Progressive Proportional Regressive Excise Property School Tolls Medicare Social Security

Does income redistribution make the economy less efficient?

Yes, but is that bad?

The Micro Connection Shifting the Supply Curve Tax Subsidies Price Floors and Ceilings Per Unit Taxes- impacts the MC curve Lump Sum Taxes- impacts AFC and ATC curves Marginal Social Costs Marginal Social Benefits Externalities

Fiscal Policy Goals Steady Growth (GDP) Stable Prices (Inflation- CPI, PPI) Full Employment- frictional and structural But how should we prioritize?

Adam Smith’s Theory of Good Taxes There is no art which one government sooner learns of another than that of draining money from the pockets of the people. The Wealth Of Nations, Book V Chapter II Part II, Appendix to Articles I&II, p. 861, para. 12. http://www.adamsmith.org/adam-smith-quotes/

Fairness Progressive Income Tax As Income Level increases; % taxed increases http://www.progress.org/banneker/adam.html

Clarity http://www.economictheories.org/2008/08/adam-smith-taxation-adam-smith-tax.html

Convenience of Payment www.irs.gov

Ease of Administration

Flexibility

Your job- Create a fair plan Who/what to tax? Progressive income If below poverty level regressive Corporations that pollute Unhealthy food Bridges What to spend money on? bridges