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Economic Impact of Taxes (cont.). Taxes and other governmental revenues influence the economy by affecting. Resource allocation Behavior adjustment. Sin tax Know examples of sin taxes. Section 1. Economic Impact of Taxes (cont.). Productivity and growth. Determining incidence of a tax

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Section 1

Economic Impact of Taxes (cont.)

  • Taxes and other governmental revenues influence the economy by affecting

  • Resource allocation

  • Behavior adjustment

  • Sin tax

    • Know examples of sin taxes

Section 1


Section 11

Economic Impact of Taxes (cont.)

  • Productivity and growth

  • Determining incidence of a tax

    • Understand how “incidence of a tax” works and how the burden of the tax can be shifted to the consumer depending on the nature (elasticity) of the product.

Shifting the Incidence of a Tax

Section 1



Section 12

Criteria for Effective Taxes (cont.)

  • Taxes must meet 3 criteria:

  • Equity—impartial and just: Makes sense to avoid tax loopholes

  • Simplicity—tax laws written so taxpayers and collectors can understand them

  • Efficiency—easy to administer and successful in generating revenue

Section 1


Section 13

Two Principles of Taxation (cont.)

  • United States taxes are based on two principles

  • Benefit principle of taxation

  • Limitations to the benefit principle of taxation

  • Those who receive government services are least likely to afford them.

  • Benefits are hard to measure and impact others.

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Section 14

Two Principles of Taxation (cont.)

  • Ability-to-pay principle of taxation

  • We can’t always measure benefits derived from government spending.

  • Assumes individuals taxed more suffer less discomfort paying taxes

Section 1


Section 15

Three Types of Taxes (cont.)

  • Three general types of taxes exist in the United States today.

  • Proportional tax

  • If the percentage tax rate is constant, the average tax rate is constant.

  • Medicaretax fund

Three Types of Taxes

Section 1


Section 16

Three Types of Taxes (cont.)

  • Progressive tax

  • Marginal tax rate

  • Regressive tax

Profiles in Economics:Monica Garcia Pleiman

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Types of Taxes All taxes in the United States can be broken down into three categories: proportional, progressive, and regressive

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