Matakuliah
Tahun
: J0114-Teori Ekonomi
: 2009
PUBLIC CHOICE THEORY AND THE
ECONOMICS TAXATION
Pertemuan 24
Public Choice Theory
O 29.1
• Government Failures
• Revealing Preferences Through Majority
Voting
– Inefficient Voting Outcomes
• Inefficient “No” Vote
• Inefficient “Yes” Vote
Graphically…
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3
Public Choice Theory
Inefficient Voting Outcomes
Inefficient
Majority “Yes” Vote
Benefit; Tax
Benefit; Tax
Inefficient
Majority “No” Vote
$700
Adams
$300
$250
Benson
$350
$350
Benson
Conrad
“YES”
“YES”
$300
$200
$100
Conrad
Adams
“YES”
“NO”
“NO”
0
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“NO”
0
“NO” Wins!
Inefficient Since
MSB > MSC
$1,150 > $900
“YES” Wins!
Inefficient Since
MSB < MSC
$800 < $900
4
Public Choice Theory
• Interest Groups
• Political Logrolling
– Logrolling – Vote Trading
• Paradox of Voting
– Preferences
– Voting Outcomes
• Median-Voter Model
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5
Government Failure
• Special-Interest Effect
– Pork-Barrel Politics
•
•
•
•
•
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Rent-Seeking Behavior
Clear Benefits, Hidden Costs
Limited and Bundled Choice
Bureaucracy and Inefficiency
Imperfect Institutions
6
Apportioning the Tax Burden
• Benefits-Received Principle
• Ability-to-Pay Principle
• Tax Progressivity
– Progressive
– Regressive
– Proportional
• Applications
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7
Tax Incidence
• Elasticity and Tax Incidence
– Division of Burden
– Elasticities
• Efficiency Loss of a Tax
– Tax Revenues
– Efficiency Loss
– Role of Elasticities
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8
Tax Incidence
Incidence of an Excise Tax
P
S’
14
S
Price (Per Bottle)
12
Tax $2
10
8
6
4
D
2
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0
5
10
15
20
25
Q
Quantity (Millions of Bottles Per Month)
9
Tax Incidence
• Elasticity and Tax Incidence
– Division of Burden
– Elasticities
• Efficiency Loss of a Tax
– Tax Revenues
– Efficiency Loss
– Role of Elasticies
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10
Tax Incidence
Demand Elasticity and the Incidence
of an Excise Tax
P
P
St
Tax
Tax
S
S
a
Pi
Pe
P1
Pa
St
a
b
c
Q2
Q1
P1
Pb
De
b
c
Q2Q1
Dt
0
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Q
Tax Incidence and
Elastic Demand
0
Q
Tax Incidence and
Inelastic Demand
11
Tax Incidence
Supply Elasticity and the Incidence
of an Excise Tax
P
P
Tax
St S
Tax
St
a
Pe
P1
Pa
S
b
Pi
P1
a
b
c
Pb
c
D
0
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Q2
Q1
Tax Incidence and
Elastic Supply
D
Q
0
Q2Q1
Tax Incidence and
Inelastic Supply
Q
12
Tax Incidence
P
Efficiency Loss of a Tax
S’
14
Tax Paid by
Consumers
S
Price (Per Bottle)
12
Tax $2
10
8
6
4
2
Bina Nusantara University
0
Tax Paid by
Producers
Efficiency
Loss (or
Deadweight
Loss)
D
5
10
15
20
25
Q
Quantity (Millions of Bottles Per Month)
13
Incidence of U.S. Taxes
Taxes on Goods and Services as a Percentage
of Total Tax Revenues
GLOBAL PERSPECTIVE
0
United Kingdom
Netherlands
Germany
Italy
Sweden
Canada
France
Japan
USA
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5
10
15
20
25
30
35
32.7
30.8
29.2
26.9
26.4
26.3
25.4
20.1
17.6
Source: Organization for Economic Cooperation and Development, 2002
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