1. Taxation, Incidence, Distribution
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.

2. The Three Rules of Tax Incidence
19 . 1
The Three Rules of Tax Incidence
The Statutory Burden of a Tax Does Not Describe Who Really Bears the Tax

3. Example 1. Impact and incidence of a producer tax on apples
Demand for apples: Qd = P
Supply of Apples Qs = P
A $2 per bushel tax is placed on producers
a. who bears the statutory incidence of tax?
b. who bears the economic incidence of the tax?
Cons. tax burden: pretax P-post-tax P + tax remitted
Prod. tax burden: post-tax P-pretax P + tax remitted

4. Taxation and Efficiency Ch 15

5. Introduction
Excess burden is a loss of welfare above and beyond the tax revenues collected.
also refer as welfare cost or deadweight loss
Other Key Concepts:
Consumer surplus, social surplus

12. Taxation and Economic Efficiency
Graphical Approach

20. Taxation and Economic Efficiency
20 . 1
Taxation and Economic Efficiency
Elasticities Determine Tax Inefficiency
The inefficiency of any tax is determined by the extent to which consumers and producers change their behavior to avoid the tax; deadweight loss is caused by individuals and firms making inefficient consumption and production choices in order to avoid taxation.

21. Taxation and Economic Efficiency
20 . 1
Taxation and Economic Efficiency
Elasticities Determine Tax Inefficiency

22. Excess burden = ½ ηPgq1tg^2
Excess burden: loss of welfare above and beyond taxes collected
η = (eta) elasticity of demand
Pg = Price of gas
q1= pretax equilibrium quantity
tg ^2= tax rate

23. Excess Burden: Airline ticket example
Federal airline tax of 10%
Value of tickets sold: $86 billion
Price elasticity of D (η): 1.0
Excess burden: ½ ηPaq1ta^2