ECO 101 Chapter Notes - Chapter 17 (Pages 356-364): William Baumol
Document Summary
Taxes are judged on two criteria: equity and efficiency. Horizontal equity: horizontal equity- is the notion that equally situated individuals should be taxed equally. The benefits principle: benefits principle of taxation- holds that people who derive benefits from a service should pay the taxes that finance it. Burden of a tax- to an individual is the amount one would have to be given to be just as well off with the tax as without it. The burden of a tax normally exceeds the revenue raised by the tax. When a tax endive no change in economic behavior, the burden of the tax is measured accurately by the revenue collected. Excess burden- of a tax to an individual is the amount by which the burden of the tax exceeds the tax that is paid. When a tax induces people to change their behavior the tax has excess burden.
