Taxation and the role of Government in the economy

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Taxation and the role of Government in the economy

• Power Point presentation by Dr. Kate Johnston

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What is the role of governments in the economy?
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Government spending
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Government spending in the UK
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What methods exists for government intervention
designed to improve the allocation of resources?
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Government Intervention (ctd)

• (

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Government spending
We may justify government spending on two grounds

• EQUITY
• EFFICIENCY

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Private and public goods
.
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Merit goods and bads
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Varieties of taxes

• Direct taxes
• Indirect taxes
• Wealth taxes

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Who pays a commodity tax?
Price
S
P0

S
D
Q0
Quantity
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Who pays a commodity tax?
S'
S
P1
P0
S'
S
D
Q1
Q0
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A tax on wages
SS
Wage
W
DD
L
Hours worked
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The incidence of a tax
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A tax to offset an externality
SS
Price
DD
Q
Quantity
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The Laffer curve
Tax revenue
100
t
Tax rate
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Economic sovereignty

• .

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