14-1Part 4 Framework for Tax AnalysisoCh 14 Taxation and Income DistributionoCh 15 Taxation and EfficiencyoCh 16 Efficient and Equitable TaxationMcGraw-Hill/IrwinCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.CHAPTER 14TAXATION AND INCOME DISTRIBUTION14-3Sections:oTax Incidence: General RemarksoPartial Equilibrium ModelsoGeneral Equilibrium ModelsoConclusions14-4VocabularyoStatutory Incidence oEconomic IncidenceoTax ShiftingoPartial Equilibrium Models 14-5Tax Incidence: General RemarksoOnly people can bear taxesnFunctional distribution of incomenSize distribution of incomeoBoth sources and uses of income should be consideredoIncidence depends on how prices are determinedoIncidence depends on the disposition of tax revenuesnBalanced-budget tax incidencenDifferential tax incidencenLump-sum taxnAbsolute tax incidence14-6Tax Progressiveness Can Be Measured in Several WaysoAverage tax rate versus marginal tax rateoProportional tax systemoProgressive tax systemoRegressive tax systemo中华人民共和国个人所得税法Tax Liabilities under a hypothetical tax systemIncomeTax LiabilityAverage Tax RateMarginal Tax Rate$2,000-$200-0.100.2 3,000000.25,0004000.080.210,0001,4000.140.230,0005,4000.180.214-7Measuring How Progressive a Tax System is14-8Measuring How Progressive a Tax System is A Numerical Example14-9Before TaxAfter TaxConsumers PaySuppliers Receive$1.40$1.00$1.20$1.20D0S0D1S1Partial Equilibrium ModelsQuantity$14-10DXSSXDXPerfectlyInelasticSupplyQuantity$14-11DXSSXDXPerfectlyElasticSupplyQuantity$14-12Ad Valorem TaxesPounds of food per yearPrice per Pound of foodDfSfQ0QmQrP0PmPrDf14-13Taxes on FactorsoThe Payroll TaxoCapital Taxation in a Global Economyo农民工喊“加工资”，企业承诺缴“五金”？谈不拢！14-14The Payroll TaxHours per yearWage rate per hourDLSLL0 = L1wg = w0PrDLwn14-15Commodity Taxation without CompetitionoMonopolyoOligopoly14-16MonopolyX per year$DXMRXATCXMXXX0P0ATC0abcdEconomicProfitsDXMRXPnigfhX1EconomicProfitsafter unittax14-17Profits TaxesoEconomic profitoPerfect competitionoMonopolyoMeasuring economic profit14-18Tax Incidence and CapitalizationPR = $R0 + $R1/(1 + r) + $R2/(1 + r)2 + + $RT/(1 + r)TPR = $(R0 u0) + $(R1 u1)/(1 + r) + $(R2 u2)/(1 + r)2 + + $(RT uT)/(1 + r)Tu0 + u1/(1 + r) + u2/(1 + r)2 + + uT/(1 + r)TCapitalization14-19General Equilibrium ModelsoPartial equilibrium oGeneral equilibrium14-20Tax Equivalence RelationstKF = a tax on capital used in the production of foodtKM = a tax on capital used in the production of manufacturestLF = a tax on labor used in the production of foodtLM = a tax on labor used in the production of manufacturestF = a tax on the consumption of foodtM = a tax on consumption of manufacturestK = a tax on capital in both sectorstL = a tax on labor in both sectorst = a general income tax14-21Tax Equivalence RelationsoPartial factor taxestKFandtLFare equivalent totFandandandtKMandtLMare equivalent totMareareareequivalentequivalentequivalenttotototKandtLare equivalent totSource: McLure 1971.14-22The Harberger ModeloAssumptionsnTechnologyoElasticity of substitutionoCapital intensiveoLabor intensivenBehavior of factor suppliersnMarket structurenTotal factor suppliesnConsumer preferencesnTax incidence framework14-23Analysis of Various TaxesoCommodity tax (tF)oIncome tax (t)oGeneral tax on labor (tL)oPartial factor tax (tKM)nOutput effectnFactor substitution effect14-24Some QualificationsoDifferences in individuals tastesoImmobile factorsoVariable factor supplies14-25An Applied Incidence StudyIncome CategoryAverage Federal Tax RateShare of Federal TaxesLowest Quintile 5.6%1.1%Second Quintile12.15.2Third Quintile15.710.3Fourth Quintile19.819.0Highest Quintile26.564.2All Quintiles21.6100.0Top 1%31.221.3Source: Congressional Budget Office 2004. These figures are based on projections that rely on assumptions about inflation and income growth.They include all tax law as of 2001.Table 14.3Average federal tax rates and share of federal taxes by income quintile (2006)