This lecture covers the material found in chapter 16 of Case and Fair, Principles of Economics, 7/e. In this lecture we will look at the economics of taxation, the ideas of tax incidence, tax equity, and excess burden of taxes. Upon completion of this lecture, you should understand and be able to answer these key questions:
1. What is public finance? What is the base of a tax, what is the rate structure?
2. What are proportional, progressive and regressive taxes? What is the marginal tax rate? What is the average tax rate?
3. What is a fair tax system?
4. What is the incidence of a tax and how does this relate to tax burden? What is tax shifting and how does the elasticity of labor supply affect the burden of taxes imposed on labor?
5. What is the burden of payroll tax? What is the burden of corporate taxes? What is the burden of state, local and federal taxes?
6. What is excess burden and how does it relate to the principle of neutrality? How is it measured?