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73 Cards in this Set
- Front
- Back
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How is government size measured? (3)
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1.# of gov. employees
2.Gov. purchases 3.Gov. Spending |
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What is nominal spending?
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price per unit * number of units
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What is real spending?
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nominal spending/inflation
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Why do governments exist?(3)
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1. Establish and maintain property rights
2.provide macroeconomic stability 3.provide ways to allocate scare resources during market failures |
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What are some consequences of market failures?
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Too MUCH of an UNDESIRED good/service produced/consumed
Too LITTLE of a DESIRED good/service produced/consumed |
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Why do market failures occur? (5)
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1. Monopolies & oligopolies
2. income redistribution 3. externalities 4. incomplete information 5. public goods & common pool resources |
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What is a positive externality? Negative externality?
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Positive= BENEFIT that falls on someone other than consumer or producer
Negative= COST " " |
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What is adverse selection?
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Situation when undesirable products or consumers have a higher chance of being selected
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What is Moral hazard?
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Situation of obtaining insurance against an adverse outcome leads to changes in behavior that increase the likelihood of the outcome
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What is an excludable good?
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Can exclude someone from enjoying the benefits
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What is a rival good/resource?
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Consumption from on person can reduce consumption by another person
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What is the free rider problem?
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Market economy fails to deliver an efficient quality of public goods
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What is the problem of the commons?
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Market economy fails to deliver an efficient quantity of common pool resources b/c they are owned by no one but used by anyone.
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What is the difference between provision and production?
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Provision= government funded
production= produced w/o gov. funds |
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What is privatization?
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Transfer of government functions to a private sector.
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What are some advantages of privatization?
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1. Greater efficiency
2. better response to consumer demands 3. smaller gov't 4. cash from sale of assets |
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What are some disadvantages of privatization?
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1. Loss of gov't control
2. cheating on contracts 3. may not work for some public goods and services |
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What two changes cause movement along the demand curve?
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1. Change in price
2. Change in quantity demanded |
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What changes cause a SHIFT in the demand curve?
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1. Change in demand
2. Change in preference 3. Complements in consumption 4. Substitutes 5. # of buyers 6. change in income 7. Change in taxes 8. Expectations |
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What two changes cause movement along the supply curve?
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1. Change in price
2. Chnage in quantity demanded |
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What causes a SHIFT in the supply curve?
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1. Change in supply
2. taxes & subsidies 3. natural disasters 4. Prices of inputs 5. number of sellers 6. technology changes 7. economic conditions 8. prices of substitutes and complements |
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What is elasticity?
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Measures the responsiveness of one indicator to changes in another indicator
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What is price elasticity of demand?
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Responsiveness of the quantity demanded to a change in price.
Always NEGATIVE |
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What is price elasticity of supply?
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Responsiveness of the quantity supplied to the price change
Always POSITIVE |
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When is a market efficient?
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When consumer and producer surpluses are maximized (economy is in equilibrium)
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What is the standard criterion for evaluating taxes? (5)
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1. Yield
2. Equity 3. Economic neutrality 4. Collection cost 5. Transparency |
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In terms of yield dynamics, what is elasticity?
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The percentage change in TAX BASE for each percentage point increase in economic activity.
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In terms of yield dynamics, what is buoyancy?
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The percentage change in TAX COLLECTIONS for each percentage point increase in economic activity. Includes impact of changes in rate and structure on collections.
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What is horizontal equity? Give an example.
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Equal treatment of equals.
Ex: Two similar houses in different states will be taxed differently. Just like two households with the same income from different income sources will be taxed differently. |
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What is vertical equity? Name and describe the 3 types.
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Unequal treatment of unequals.
Proportional: no impact on income distribution Progressive: distributes toward lower income households Regressive: distributes toward higher income households |
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Define tax incidence
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The division of the burden of a tax between the buyer and the seller.
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When does the buyer's burden occur?
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When price paid by the buyer rises after the tax is imposed.
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When does the seller's burden occur?
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When price received by the seller falls after the tax is imposed.
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For tax on a seller/buyer... If supply is more elastic than demand...?
If supply is less elastic...? |
If supply is more elastic than demand, the buyers pay largest tax burden
If supply is less elastic, the sellers pay the largest tax burden. |
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What is a tax wedge?
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Difference between price as seen (paid) by the buyer and price as seen (received) by the seller.
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Define tax burden and excess burden. Combined, what are they referred to as?
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Tax burden= value of resources taken for government use
Excess burden= economic loss from distortion of consumer and producer choices. Tax burden + excess burden= TOTAL burden |
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Define compliance cost
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Cost to taxpayer of record keeping and reporting obligations- money paid to accountants etc.
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Define administrative cost
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cost to government agencies of collecting the tax- money spent by IRS, IDR, etc.
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What are the 3 types of income taxes? 3 subtypes?
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Federal, state, and local
Personal, corporate, payroll |
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Define gross income
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wages and salaries, taxable interest, dividends, capital gains, rents, royalities,pensions, business income, income from estates and trusts, farm income, refunds of taxes, alimony received, unemployment, and all other income
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What is the adjusted gross income?
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Gross income minus personal exemptions (family size, over 65,etc.) and personal deductions (standard or itemized)
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Taxable income
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Adjusted gross income minus personal exemptions and personal deductions
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Average rate
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tax paid/taxable income
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Average effective rate
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tax paid/adjusted gross income
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Marginal effective rate
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change in tax paid/chang in adjusted gross income
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What is the standard criterion for evaluating taxes?
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Yield
Equity Economic neutrality Collection cost Transparency |
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Name 3 advantages of income taxation
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Reasonable measure of ability to pay
Yields substantial revenue at socially, politically, and economically feasible rates. Base responds to economic growth- revenue elasticity >1 |
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Name 3 disadvantages of income taxation
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Discourages economic productivity- taxing according to value produced for society
Discourages saving Great potential for distorting household and business choices |
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What is the alternate minimum tax?
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Alternate tax system that removes certain preferences from calculation- taxpayer pays the higher of the two liabilities
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Describe Corporate Income Taxes
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Measure of business profit. Types of businesses: sole proprietorship,partnership, S corp, C corp
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What is corporate inversion?
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When a corporation moves its headquarters to a nation with low or no corporate income tax. U.S. corporation then becomes the subsidiary.
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What type of consumption taxes are there in the following: federal, state, local?
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Federal: no general consumption tax, but selective excises
State: retail sales tax revenue is a second to individual income taxes Local: 36 states permit local sales taxes. General and selective, depending on what state permits |
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Name 3 advantages of consumption taxes
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1. Based on the ability to pay, not current income.
2. can drive the cos of externalities into prices when applied to specific goods (excise taxes) 3. Encourage private saving |
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Describe the 2 equity problems in terms of consumption taxes
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Vertical equity problem: lower income households spend a larger proportion of their income on consumption goods, ensuring they pay sales taxes at higher rates than wealthier people
Horizontal equity problem: people have different preferences in overall consumption and specific items. If household doesn't purchase the item it won't bear the tax and amount of tax paid depends on how much of the item is purchased. |
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Name the types of sales taxes (5)
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1.Value added tax
2. retail sales tax 3. gross receipts tax 4. selective (excise) 5. Use taxes |
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Define assessment
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Since the base does not have a value set by current market transactions (like income/sales tax), the government must come up with a value for all of the houses in every year.
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What is real property?
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Real estate or land and improvements on that land
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What is personal property?
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More mobile than real property
Tangible: held for its own sake: cars, machinery, inventory, etc. intangible: valued because of its ownership claim on something else. |
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What data is required to set the rate?
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1. Planned expenditure: either approved or proposed- E
2. Estimated other revenue-NPR 3. Levy- $$ government needs to collect from prop. tax= E-NPR 4. Net assessed value- the current assessed value of all property to be taxed in the taxing unit- NAV |
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What is the formula to determine the necessary tax rate?
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r= (E-NPR)/NAV
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What is the importance of assessment values?
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Assessment values are often not identical to market value and can vary substantially- can't make direct (meaningful) comparisons of rates across countries.
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Describe the 3 approaches assessors use to assess property that hasn't recently been sold
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1. Market data or comparable sales approach
2. Income approach: building is valued according to present value of rents paid by tenants 3. Cost or summation approach: estimates value by adding the depreciated cost of improvements on a parcel to the estimated land value |
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Abatement
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Relieve property tax for a defined period
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Deferral
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delay property tax payment (elderly, farmland)
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Property classification
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Lower rate for certain types of properties
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Forecast
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Current Law Baseline- "no policy change"
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Estimate
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Revenue effect of changing current tax law
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Tax expenditure
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Estimate of revenue "foregone" from special tax provisions
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Entirely static
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assumes there are no behavioral changes to the tax rate/ structure changes
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Adjusted static
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recognize that households and businesses change their behavior when tax rates and structures change. Include those behavioral responses in the estimates and adjust tax base accordingly
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dynamic scoring
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brings both microeconomic and macroeconomic impacts of tax changes into a model of the tax base
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tax expenditure
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what is the revenue lost from special provisions in the tax law that benefits certain entities or individuals
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Two components of tax structure
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Normal structure: defines fundamental tax policy based value of real property, househod consumption, family income, etc.
Tax expenditures: budget policy delivered through the tax structure- deviations from the normal structure that reduce tax paid by certain entities |
