ECON 1000 Lecture Notes - Lecture 12: Laffer Curve
8 May 2017
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Econ 1000 week 6 lecture 12. Governments need revenue in order to pay for things it buys (army, doctors, legal systemetc) Deadweight loss is amount of possible income lost from tax, taxes have excess losses, because it affects incentives. To make an efficient tax policy you want to minimize deadweight loss for any given tax revenue. In perfectly inelastic supply curves, sellers bare 100% of the taxation cost. Also quantity supplied is not affected which means you make a nice amount of tax revenue (bigger rectangle) also you minimize deadweight loss. If you tax something you reduce total surplus because there is less buying and selling. The less the elasticity of the seller compared to the demand curve there is a bigger burden of taxation to bare on the supply curve. Property taxes can be an example of a 100% tax burden.
