Archive for the ‘Tax Policy’ Category

If You Want Less of Something…

March 3, 2017 Leave a comment

tax it.

This article illustrates several things we talk about in the introductory and intermediate microeconomics classes: derived demand, tax incidence, and the relationship between price elasticity of demand and close substitutes.

I hope my students can read it and apply these concepts to what they read.


Tax Incidence and Elasticity

January 1, 2016 Leave a comment


Here’s a free New Year’s day post to start your 2016 off with some economics!

First, read the news article:

New York state cigarette tax collections have plunged by about $400 million over the past five years, according to figures and estimates from the office of New York State Comptroller Thomas DiNapoli.

And New York has also lost $1.3 billion in uncollected state cigarette taxes each year from alternative sales, according to a separate study.

The state is taxing far fewer packs, as smokers evade taxed packs, shop across state lines or buy smokes from Native American merchants to avoid punitive NY taxes. A typical pack in New York costs $10.60 or more, including the nation’s highest state excise tax, $4.35.

Then, try to answer these questions:

(1) Who do you think the New York state government was trying to put the burden of the tax on: smokers, or sellers of cigarettes?

(2) Who actually seems to be bearing the greater tax incidence? How can you tell? Was that what the state government intended?

(3) Do you remember…when the size of the tax doubles, what goes up by more than double? Does tax revenue always increase?

(4) “If you want ____ of something, tax it.” Do you think the state government intended to have this effect on the cigarette market?

(5) What kind of externalities does cigarette smoking produce? Can you think of other ways the state government could have tried to deal with the externalities?


Categories: Microeconomics, Tax Policy

ISIS and Taxation

December 1, 2015 Leave a comment


Just in time for the chapter on taxes and deadweight loss, a spate of articles in the news on how ISIS is taxing for revenue:

“They fight in the morning and they tax in the afternoon,” said Louise Shelley, the director of the Terrorism, Transnational Crime and Corruption Center at George Mason University.

…as Western and Middle Eastern officials have gained a better understanding of the Islamic State’s finances over the past year, a broad consensus has emerged that its biggest source of cash appears to be the people it rules, and the businesses it controls.


Categories: Tax Policy

Quotable Don Boudreaux

November 14, 2015 Leave a comment

Sounds about right:

The second ditty that I heard on NPR was a report in which a member of the DC city council worried aloud that money “will pollute our politics.”  Such a concern is akin to worrying that dropping a moldy bagel into a cesspool will pollute the contents of the cesspool.

Categories: Tax Policy

Public Choice Economics

November 15, 2014 Leave a comment


Since we’ll be getting into some related topics soon in Microeconomics class, here’s an interesting take on the latesy controversy involving Jonathan Gruber.

Even democratic political processes that are inclusive and non-corrupt feature inordinate amounts of free-riding and other ‘market-failure’ flaws that render such processes much less likely to work to promote the general welfare than the champions of politics suppose.

Categories: Microeconomics, Tax Policy

Marriage and Poverty


If you care about poverty and income inequality, you should also care about marriage:

In 2010, among people who were 15 years and over and who were in poverty, about 16.4 million lived in poverty areas (see Table 2b). Of these, more than half were people who were never married. Among the various marital groups who were in poverty, people who were separated and those who had never married had the largest proportions living in poverty areas.

Of course, we’re just seeing a strong correlation between not being married and being in poverty. Surely, there is causality in both directions: those very poor or with limited earning skills are also less attractive candidates for marriage.

But decade after decade of data point to the inescapable conclusion that stable families held together by marriage do a lot over the long term to lift people out of poverty and keep people out of poverty. The idea that you can care about the poor, but exclude marriage as an important part of the solution, ignores reality.


The Effects of Government Price Controls, Part 3

February 20, 2014 Leave a comment

I’m not quite sure why those in favor of a minimum wage increase don’t see it as a form of government price controls.

I don’t doubt that they have their heart in the right place. And there’s some evidence that, at least in the short-term, increases in the minimum wage don’t have the same effect as other government price controls. Demand for unskilled labor is almost certainly less elastic than demand for, say, television sets.

But it is a form of price control, and the expected effects shouldn’t be surprising:

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects…