1. The principles of taxation

2. Introduction to taxes w Poland: Excise duty Agricultural tax VAT PIT CIT Stock exchange tax Etc.

3. General info w Income tax not until 1840s w VAT starting from 1970s w First taxes: Road tolls Customs duties (tithe) Gathering places (marketplaces)

4. Set of rules w Progressive taxes reflect the principle of ability to pay. w Vertical and horizontal equity w The benefits principle is that people getting most benefit from public spending should pay most for it. ConflictConflict

6. How it is done w Transfer payments Money for the poor (pensions, supplementary benefit…) w Public goods available to anyone (even for those not paying taxes)

7. Drawbacks w Regressive elements Beer, tobacco - huge earners for the government Yet, the poor spend the highest proportion of their income on them

8. Tax incidence w (please draw Your attention to the black (white) board

9. New terms w Tax incidence is the final tax burden once we allow for all induced effects of tax w The tax wedge is the gap between the price paid by the buyer and the price received by the seller

10. Final word w The more inelastic the supply curve and the more elastic the demand curve, the more the final incidence will fall on the seller rather than the purchaser.

11. Must taxes distort? w Government needs tax revenue to pay for public goods and make transfer payments w When supply or demand curve is very inelastic, a tax leads to a small change in equilibrium quantity w Waste is the smallest when inelastic goods are taxed most heavily

12. Must taxes distort? w In UK most heavily taxed are alcohol and tobacco. w Cigarette smokers cause a harmful consumption externality w SS supply curve w DD private demand curve

13. Must taxes distort? w With no tax equilibrium is at E w Tax shifts equilibrium to F w The tax rate E*F guides the free market to efficient allocation w Low tax rate=>high consuption=>high production w Alcohol and tobacco are harmful-one of the reasons the are taxed heavily

14. Taxation and supply side economics w Supply side economics analyses how taxes affect national output when the economy is at full capacity w Suppose the goverment cuts spending and tax rates. What are the effects???

15. Taxation and supply side economics w The Laffer curve shows how much tax revenue is raised at each possible tax rate

16. Taxation and supply side economics w Laffer’s idea: ”Big government-big tax” countries were at tax rates above t* w Governments wish to avoid borrowing need to cut their spending if they wish to cut tax rate