Chap19 Taxes on Consumption and Wealth.ppt

Chapter 19 – Taxes on Consumption and Wealth
Public Economics
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Introduction
There is substantial dissatisfaction with the federal personal and corporate e tax systems.
One possibility is to adopt a consumption tax whose base is actual consumption. Another possibility is a tax on wealth, whose base is accumulated saving.
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Retail Sales Tax
Several types on sales taxes levied on wide variety modities:
General sales tax impose the same tax rate on the purchase of modities.
Selective sales tax is levied at different rates on the purchase of modities.
Also known as excise tax or modity tax.
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Retail Sales Tax
Table shows tax revenue collected from various sales taxes.
Federal government levies no general sales tax, but does tax motor fuel, alcoholic beverages, o, and some modities.
Large majority of states have sales tax, with rates between % and %.
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Table
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Retail Sales Tax
Sales taxes generally take one of two forms:
A unit tax is a given amount for each unit purchased (., motor fuel tax that is a certain number of cents per gallon of gasoline).
An ad valorem tax puted as a percentage of the value of the purchase.
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Retail Sales Tax
Rationalizations for a sales tax
Administrative Considerations
Collected at retail level, have to monitor fewer units. heless, still difficult, and defining the tax base somewhat arbitrary.
Underground markets / smuggling
Optimal Tax Considerations
It can be shown that the e tax is not optimal, modity taxes can improve welfare.
Inverse elasticity rule could guide the rate setting
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Retail Sales Tax
Rationalizations for a sales tax
Other considerations
Sin taxes
Merit goods
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Retail Sales Tax
Efficiency and Distributional Implications
Would the pattern of sales tax rates minimize excess burden?
Overall excess burden depends on both the elasticities of each good and the degree of substitutability plementarity with other goods.
Equal tax rates is almost certainly not efficient.
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Retail Sales Tax