17(1)

a) economic efficiency tax shouldn't interfere with efficient allocation of

resources
b) administrative simplicity tax system ought to be simple, easy and
inexpensive to administer; direct and indirect, like record-keeping and
complexity of system (tax shifting to the lowest paying member, categorization of
money)
c) flexibility the tax system should easily respond to changes in the economy;
recession reduce tax revenue to stimuli the economy, progressive tax
structure; political difficulties; speed of adjustment
d) political responsibility indi can ascertain what they are paying and evaluate
how the system reflects their prefs; who really bears the tax, incentive not to
disclose by govnt
e) fairness fair in relative treatment of different indis; horizontal equity same
indis must be treated the same, but what is the same not preferences, as
opportunity set is enough, but age and/or marital status is a difference (what
gets codified); vertical equity justification for progressive taxation, but who,
how much and how to implement
(p469-475 fill in basis for taxation)
17(2)
Behavioural
a) work, education, retirement income tax
b) savings, investment, risk taking, consumption
c) tax avoidance instead of wealth creation
d) marriage and divorce
e) allocation of resources for research and development, depletion of natural
resources
Financial

a) fringe (employee) benefits income spent on insurance taxed, whereas

employer bought insurance deducted is not; similarly pension plans
b) financial structure of firms different treatment of dividends, capital gains,
interest and debt different decisions how to structure company (debt v equity)
connected to organizational effects

taxes may favor corporations or banks over other institutions, which leads
respectively to bigger risk taking and higher capital raised through banks

family organization and its well-being

(p462 summary)

17(3)
nondistortionary tax

lump-sum taxes

individual cannot alter tax liability by altering his behaviour

no reallocation of resources or changes in behaviour

BUT income effect of reduced after-tax income

distortionary tax

any commodity or income tax

arguably inefficient

corrective tax

tax correcting market failure

improving resource allocation efficiency and raising revenue

tax related to CO2 reductions & smoking

17(4)
1) how to tell who is better off
2) who has better ability to pay
3) what is equality of treatment
Income based taxation

those who have more should pay more and larger proportion of their tax,
BUT how much?

Regressive/progressive tax

Consumption based taxation

income corresponds to the value of individuals conomic output it is fairer

to tax them on consumption rather than output

because I = C +/- S, should savings be exempt?

Lifetime income

discounted lifetime income is lifetime consumption

Government uses income as the basis, because it is difficult to assess the

opportunity sets.
Benefit approach

tax the benefit from public services rather than consumption

tax as charge for public service

toll roads & gas excise

BUT impossible to identify the magnitude of benefit

also distortionary causing inefficient allocation of resources

equity-efficiency tradeoffs general revenue used for specifics

Vertical equity treatment health, marriage, children

17(5)

18(1)
Incidence is essentially how the tax burden is factually and actually spread
between the different actors, i.e. whose incomes is actually lowered
tax may get shifted (backward labour, forward consumer)
18(2)
Efficient market
It doesn't matter if the tax is imposed either on C or P, shape of the demand and
supply curves matter.
It also doesn't matte if it's specific or ad valorem tax.
18(2)
The shape (elasticity) of demand and supply curves will affect the incidence. With
perfectly elastic supply curve or perfectly inelastic demand curve, the tax will be

borne by the consumer.

Conversely perfectly inelastic supply curve or perfectly elastic demand will mean
tax is completely borne by producers.
the steeper the demand curve or the flatter the supply curve, more tax for
consumers; the flatter the demand curve or the steeper the supply curve, more
tax for producers