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Chapter 12

ECN 104 Chapter Notes - Chapter 12: Tax Rate, Deadweight Loss, Old Age Security

Course Code
ECN 104
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ECN104 – Week 5 Notes
Chapter 12
oWhat are the largest sources of tax revenue in Canada?
oWhat are the efficiency costs of taxes?
oHow can we evaluate the equity of a tax system?
oOne of the Ten Principles from Chapter 1:
A government can sometimes improve market outcomes.
Providing public goods
Regulating use of common resources
Remedying the effects of externalities
oTo perform its many functions, the government raises revenue through
oLessons about taxes from earlier chapters:
A tax on a good reduces the market quantity of that good
The burden of a tax is shared between buyers and sellers
depending on the price elasticities of demand and supply
A tax causes a deadweight loss
A Financial Overview of Canadian Governments
oFederalist Structure
oPolitical power divided between federal government and
provincial governments
oFederal government has the greater power

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oLocal and municipal governments are granted powers by the
provincial government
oFederal Government Responsibilities
oMatters of national interest: national defense and foreign policy,
international trade, competition policy, criminal law and money
and banking
oDelivery of some national social programs (e.g., Employment
Insurance (EI) and Canadian Pension Plan (CPP))
oHas unlimited taxing powers
oProvincial Government Responsibilities
oHealth care, education, welfare, natural resources within their
boundaries, and civil law
oExtensive taxing powers, but less than federal government
oAccount for more than half of activities by the public sector in
oThe Federal Government: Receipts
oThe Canadian federal government collects about 40% of the
taxes in our economy
oThe largest source of revenue for the federal government is the
personal income tax, which accounts for almost half of total
federal revenue
oThe Federal Government
oPersonal Income Taxes
The marginal tax rate is the tax rate applied to each
additional dollar of income
Higher-income individuals pay a larger percentage of their
income in taxes
oThe Federal Government: Spending
oFederal spending goes to interest on the debt and program
Old Age Security (OAS)
Canada Health and Social Transfer (transfers to the
Employment Insurance payments (EI)
National defense
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