1. 21 Taxes, Social Insurance, and Income Distribution  Addressing externalities  Providing public goods, maintaining common resources  Taxes, poverty, & income redistribution Public Policy Chpt 19 Chpt 20 Chpt 21

2. 1234567 Quantity (100s) Price ($) 20 21 22 23 24 25 26 27 28 Producer and Consumer Surplus  Efficient if there are no market failures.

3. 1234567 Quantity (100s) Price ($) 20 21 22 23 24 25 26 27 28 Excise Tax $3  An excise tax creates deadweight loss (inefficiency). Price: Quantity:

4. 1234567 Quantity (100s) Price ($) 20 21 22 23 24 25 26 27 28  If demand is more elastic… Excise Tax

5. 1234567 Quantity (100s) Price ($) 20 21 22 23 24 25 26 27 28 $3  … smaller price change but greater deadweight loss Excise Tax Price: Quantity:

6. Equity in Taxes Benefits Principle Ability-to-Pay Principle Quintile Average family income Average tax rate Lowest$14,9005.4% Highest$182,70026.8% Federal Taxes

7. Equity vs. Efficiency Rent control Lump-sum tax vs. Property tax Free parking at Regis Income tax?  Do high marginal tax rates discourage productive activity?

8. Progressive & Regressive Taxes Income ($000s) Taxes ($000s) 20406080100 5 10 15 20 25 30 35 40 Average tax rate: Marginal tax rate: 10 30 5 50 Average tax rate: Marginal tax rate:

9. Income ($000s) Taxes ($000s) 20406080100 5 10 15 20 25 30 35 40 Average tax rate: Marginal tax rate: Average tax rate: Marginal tax rate: 15 40 20 30 Progressive & Regressive Taxes