Staat Und Steuern

Front 1

Average tax rate

Back 1

average rate at which an individual or corporation is taxed

Front 2

Marginal tax rate

Back 2

Front 3

Proportional tax rate

Back 3

‍T(y) = τ • y

Front 4

Allocative perspective of taxation policy

- fostering efficiency

Back 4

‍- Maximize the "size of the cake"

- State interventions in case of market failures,

notably

- Public goods (e.g., national defense)

- Externalities

- Stimulate activities beneficial to society and

- Discourage activities costly to society

Front 5

Distributive perspective of taxation policy

Back 5

‍- Individuals differ in endowments (inc. abilities),

resulting in unequally distributed market outcomes

(income, wealth, abilities to consume)

- Reduce inequalities in market outcomes

Front 6

‍First theorem of welfare economics

Back 6

Under local nonsatiation of preferences, a Walras equilibrium is Pareto efficient.

Requirements:

1. Completeness - No transactions costs and because of

this each actor also has perfect information

2. Price-taking behavior - No monopolists and easy entry

and exit from a market.

3. Absence of market failures (information asymmetries,

externalities, public goods)Under these conditions,

there is no allocative but only a distributional

argument for state interventions (Adam Smith's

"invisible hand").

Hint 6

3

Front 7

Second theorem of welfare economics

Back 7

Out of all feasible Pareto optimal allocations, one can achieve any particular one by enacting a lump-sum tax and then letting the market take over.

Additional requirements to the first theorem of welfare economics: convexity of preferences and production set.

Front 8

Linear tax schedule

("negative income tax" when b>0)

Back 8

T(y) = τ • y - b τ>0

Front 9

Tax with an allowance

Back 9

T(y) = max {τ • (y - b), 0} τ, b > 0

Front 10

Tax with exemption limit*

Back 10

* disadvantage: Reversal of rank order near the limit

Front 11

Graphical explanation of the difference between tax exemption limits and allowances

Back 11

Front 12

When is a tax progressive?

Back 12

A tax is progressive, if an individuals average tax rate increases with income

Progressive tax schedules imply higher marginal tax rates than average tax rates.

Front 13

Degree of progressiveness (formula)

Back 13

Front 14

Progressiveness:

When is a tax regressive?

Back 14

Front 15

Progressiveness: When is a tax proportional?

Back 15

Front 16

Progressiveness

Elasticity of revenue

Back 16

α >1: tax schedule with elastic revenue

Front 17

Progressiveness

Residual income elasticity

Back 17

with net income, x(y) = y −T(y)

1. Measure of local progressivity, showing how a marginal variation of pre-tax income changes post-tax income.

2. Progressive tax schedules imply a residual income

elasticity of ρ< 1.3. The smaller is ρ, the more

progressive the tariff.

Front 18

Prototypes of tax schedules for married couples

Household taxation:

Back 18

Front 19

Prototypes of tax schedules for married couples:

Individual taxation:

Back 19

Front 20

Prototypes of tax schedules for married couples:

Splitting

Back 20

Front 21

Principles for the taxation of couples

Back 21

Non-discrimination of marriage:

· The tax burden of two individuals with incomes y1

und y2 should not increase when they get married.

Global income taxation:

· The tax burden of the married couple should depend

exclusively on the sum y1 + y2 and not on the

istribution of the partners' incomes.

· Justification: View of married couples as economical

distribution(e.g., social welfare benefits,

maintenance obligations).

Front 22

Taxation of married couples

What is the problem with household taxation?

Back 22

household taxation violates the non- discrimination principle

(Verheiratete Paare zahlen mehr Steuern als unverheiratete)

Front 23

Taxation of married couples

What is the problem with individual taxation?

Back 23

If two spouses have different incomes and the tax is individual and progressive, then they pay a higher tax than a couple where the incomes of both spouses are the same.

Hence, we have a violation of the principle of global income taxation.

Front 24

Setup of the labor supply model

Individual utility function

+ Budget and time restraint

Back 24

U(Y,F) = U (Y, 1-L)

Hours of Work: 0 <= L <=1 wage rate: w

Time budget: 1 exogenous income: I

Leisure time F: 1 - L

Budget constraint: Y = wL + I

Time constraint: 1 = L + F

Front 25

Setup of the labor supply model

Was folgt aus Budget und time restraint?

Back 25

Front 26

Taxing labor income

Disposable income

Back 26

Y = I + (1-t)w°L

With:

w° gross wage

I exogenous income

Front 27

Taxing labor income

Net wage

Back 27

Front 28

Taxing labor income

Calculating the tax liability

Back 28

= gross income - net income

Front 29

Taxing labor income

Dead weight loss

Back 29

aka.: excess burden (due to substitution effect)

DWL = - EV - R

EV Equivalent Variation of the individual welfare loss

R Tax Liability

Front 30

Taxing labor income

Equivalent variation of the individual welfare loss

Back 30

Front 31

Taxing labor income

Distortionary tax

Back 31

Distortionary tax

· Changes the relative price of labor.

· Substitution effect lowers tax revenues in

comparison to the lump-sum tax.

· Tax revenues are not sufficiently high to completely

compensate the households by reimbursement.

· The net loss is the deadweight loss.

Front 32

Taxing labor income

Lump-sum tax

Back 32

Lump-sum tax

· Does not change relative prices (parallel shift of

budget line), so that no substitution effect is caused.

· A reimbursement of the tax revenues would

reestablish the original position of the household

without loss of utility.

Front 33

Elasticity of revenue

Back 33

Front 34

Residual income elasticity

Back 34

net income x = y - T(y)

Front 35

Optimal income taxation

What determines the distributional effects?

Back 35

tax liability function T(Y),

or likewise the average tax rates T(Y)/Y

Front 36

Optimal income taxation

What determines the efficiency effects?

Back 36

marginal tax rates T'(Y)

Front 37

Optimal income taxation

What determines the incentives in the respective

income classes?

Back 37

Marginal tax rates T'(Y)