1、CHAPTER 16Public Goods and Tax PolicyGoods Classifications:nExcludable can prevent people from consuming without payingnRival in consumption can not be consumed by more than one person at the same timeFour types of goodsnPrivate goods:excludable and rival in consumptionnCollective goods(Artificially
2、 scarce goods):excludable and non-rival in consumption nCommons goods(common resources):non-excludable and rival in consumptionnPublic goods:non-excludable and non-rival in consumptionFour types of goodsPrivate good(wheat)Collective good(pay-per-view TV)Commons good(fish in the ocean)Public good(nat
3、ional defense)RivalNon-rivalNon-excludableExcludableFrom Table 16.1,P.365Goods ClassificationHW5nExplain the characteristics of the 4 types of goods n4 types:private;collective;common;publicnList 5 goods that belong to each of the 4 types and explainPrivate Goods:nExcludable and rival in consumption
4、nNon-payers can be easily excluded nEach unit consumed by one person means one less unit available for othersnthe only goods that can be efficiently produced and consumed by marketCollective Good:(Artificially Scarce Goods)nExcludable but non-rival in consumption It is not really scarce:use by one p
5、erson does not reduce its availability to others But it can be excludable:people who do not pay can be prevented from using itArtificially Scarce GoodsAn artificially scarce good is excludable and non-rival in consumption.It is made artificially scarce because producers charge a positive price but t
6、he marginal cost of allowing one more person to consume the good is zero.Common Goods:(Common Resources)nNon-excludable and rival in consumption Non-payers cannot be easily excluded Each unit consumed by one person means one less unit available for othersnThe problem of overuse-a user depletes the a
7、mount of the common resource available to others but does not take this cost into account when deciding how much to use the common resourceA Common ResourceFishing in a public river:Each fishermans individual marginal cost does not include the cost that his or her actions impose on others:the deplet
8、ion of the common resource the marginal social cost curve,MSC,lies above the supply curve;in an unregulated market,the quantity of the common resource used,QMKT,exceeds the efficient quantity of use,QOPT.The Efficient Use and Maintenance of a Common ResourcenUse taxes nMake it excludable and assign
9、property rightsnCreate of a system of tradable licenses for the right to use the common resourcePublic Good:nA good or service that,at least to some degree,is both non-rival and non-excludable Non-rival Good A good whose consumption by one person does not diminish its availability to others Non-excl
10、udable Good A good that is difficult,or costly,to exclude non-payers from consumingIf non-excludable:nRational consumers wont be willing to pay for the goodnPeople who do not pay can not be prevented from consumingnFree-rider problem:individuals have no incentive to pay for their own consumptionnIne
11、fficiently low productionIf non-rival in consumptionnMarginal cost=0nPrice should be 0nInefficiently low consumptionWhat goods and services should government provide?nPure Public Good A good or service that,to a high degree,is both non-rival and non-excludablenPure public goods should be provided by
12、 government because:For-profit private firms would find it difficult to recover their costs of production.Since the MC of serving additional users is zero once the good has been produced,then charging for the good would be inefficient.Cost-Benefit AnalysisnSocial costs and social benefits nPeople ha
13、ve no incentive to pay for efficient quantity of public goodsnPeople tend to overstate the value of public goods(people tend to prefer too much of the goods when they dont have to pay for it:marginal cost is 0)Advantages of Using Government to Provide Public GoodsnCost of adding a tax is relatively
14、lownMinimizes the difficulty in determining who will bear what share of the tax burdennMay be the only feasible providerGovernment ProvisionnA pure public good should be provided by the government only when the benefit exceeds the cost.nThe cost of the public good is the sum of the explicit and impl
15、icit costs incurred to produce it.nThe benefit of the public good is the sum of the reservation prices of all people who want the good.Government taxes:the way to finance public goodsnPaying for Public Goods Not everyone benefits equally from a public good or service.Therefore,the most equitable way
16、 to pay for the public good or service is to tax people in proportion to their willingness to pay.Tax SystemnHead Tax A tax that collects the same amount from every taxpayer A head tax rule will rule out the provision of many worthwhile public goods.nProportional Income Tax A tax under which all tax
17、payers pay the same proportion of their incomes in taxesTax SystemnRegressive Tax A tax under which the proportion of income paid in taxes declines as income risesnProgressive Tax One in which the proportion of income paid in taxes rises as income rises.Alternatives to using taxes to fund public goo
18、ds:nFunding by donationnDevelopment of new means to exclude non-payersnPrivate contractingnSale of by-productsTax SystemnTrade-off between equality and efficiencyEquity:fairness,the“right”people actually bears the tax burdenEfficiency:minimizes the direct and indirect tax collection costs to the eco
19、nomyTax Efficiency nMinimizing administration costs(direct costs)nReducing deadweight loss(indirect costs)Recall:excise taxTo Reduce Deadweight LossnTaxes decreases the price the producers receive and increases the price the consumers paynThe incidence of tax is determined by the elasticities of dem
20、and and supplynTo reduce the deadweight loss caused by tax,impose taxes on the ones who have the most inelastic responses To Lower Administration CostsnAdministration costs:the resources actually spent on collecting and paying the taxesnThe difficulties of calculating,collecting and paying the taxes
21、Tax FairnessnThe benefits principleThe ones who benefit from the spending should pay for itnThe ability to pay principleThe ones who are more able to pay should pay for itThe Tax SystemnTax bases:the income or property value that determines how much tax an individual paysnTax Structure:how the tax d
22、epends on the tax base Proportional Progressive Regressive Tax Bases（表一）劳动所得劳动所得1 1 工资、薪金所得；工资、薪金所得；2 2 个体工商户的生产、经营所得个体工商户的生产、经营所得3 3 对企事业单位的承包经营、承租经营所得对企事业单位的承包经营、承租经营所得4 4 劳务报酬所得劳务报酬所得5 5 稿酬所得稿酬所得自有资产自有资产所得所得6.6.特许权使用费所得；特许权使用费所得；7.7.利息、股息、红利所得；利息、股息、红利所得；8.8.财产租赁所得；财产租赁所得；9.9.财产转让所得；财产转让所得；偶然所得偶然
23、所得10.10.一些偶然性所得一些偶然性所得其他所得其他所得11.11.经国务院财政部门确定征税的其他所得经国务院财政部门确定征税的其他所得Income Redistribution through Taxes and Government SpendingnProgressive taxes:taking more money away from the rich to provide supports for the poornGovernment Spending:transfer payments Welfare In-kind transfers Negative income ta
24、xIncome Redistribution:Social SecuritynProgressivity(vertical equity)nIndividual equitynHorizontal equitynEconomic efficiencyProgressivity:Redistribution from the better-off to the less well-offnRedistribute resources to the elderly from the rest of the population(intergenerational redistributionnHi
25、gher rate of return on the contributions of workers with lower wages than for those with higher wagesIndividual EquityEnsuring a fair return on contributionnIndividuals should be paid retirement benefits that,on average,equal their contributions plus a fair interest ratenThe allocative and distribut
26、ive functions of government are combined into a single programnBenefits are paid out before adequate contributions have been built up Horizontal EquityEqual treatment for equalsnEqual assessment of payroll taxes on those with equal earningsnEqual benefits to those born in the same year,with equal earnings histories,and of the same family type Economic EfficiencyAchieving maximum benefit to society from available resourcesnMinimize any losses of efficiency that might arise unintentionally
