ECON 101 Lecture Notes - Lecture 9: Tax Incidence, Economic Surplus, Deadweight Loss
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ECON 101 Full Course Notes
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Tax incidence who pays the tax. Statutory incidence: who is legally responsible for paying the tax to the government, who writes the check , legal requirement. Economic incidence: who actually bears economic burden of the tax, consumers: measured by higher price paid for good (lower consumer surplus, producers: measured by lower prices received for the good (lower producer surplus) Excise tax not the largest generator of income for the gov (like income: tax levied on a particular commodity, can be quantity based. Per unit tax most excise taxes are per unit. Lessons learned and analysis apply to other taxes as well. Assume statutory incidence falls on suppliers: this actually does not matter for determining economic incidence. Impact on prices: new price consumers pay (pc) is higher than equilib price (p*, new price suppliers receive (ps) is lower than equilib price (p*) Creates wedge btw price consumers pay and price suppliers receive. No longer pc = ps = p*
