1. Public Goods & Taxes
Chapter 11

2. Public vs. Private Goods
Public Goods
Goods that are neither excludable nor rival in consumption
Private Goods
Goods that are both excludable & rival in consumption
Excludable- consumer who can not pay are excluded
Rival- consumption by one reduces quantity for others
Public Goods examples: clean air, police protection, radio signals, national defense
Private Goods: Food, Coffee, airline tickets, automobiles, etc…

3. Problems with Public Goods
Free-rider- a person who receives the benefit of a good but avoids paying for it
Examples:
“Slacker” in group work at school
Volunteer for neighborhood cleanup
Fundraising for Fire Department

4. Public Good Efficiency
When goods are available free of charge => market forces will not allocate resources efficiently
Government should collect taxes & provide public goods whenever Total Benefits ≥ Total Costs
Examples:
National Defense
Basic Research
Fighting Poverty
Fireworks on 4th of July

5. Tragedy of the Commons Common Resources – “commonly” owned resources
rival in consumption but non-excludable
Example: fish in ocean, the environment
Tragedy of the Commons- the absence of incentives to prevent “overuse” & depletion of a common resource

6. .

7. Tragedy of the Commons Reading

8. Types of Taxes Progressive Tax- Regressive Tax- Tax Incidence:
Income ↑ => Average Tax Rate ↑
Example: U.S. Federal Income Tax
Regressive Tax-
Income ↑ => Average Tax Rate ↓
Example: Gasoline Tax, Bridge Tax
Proportional Tax
Income ↑ or ↓ => Average Tax Rate stays the same
Example: Flat Income Tax, Corporate Taxes
Excise Tax
Flat fee per unit, paid at purchase
Example: Cigarettes, Gasoline (both are also regressive in tax incidence)
Tax Incidence:
Who Pays?

9. } Progressive Income Tax Tax Brackets Example: If you Earn $100,000
Total:   $ 22,746
Actual Tax Rate: %

11. The income Gap has widened last
Top 1% pay more taxes but
The income Gap has widened last
30-Years

12. EQUAL % tax cuts
What best stimulates economic growth?

13. Practice Test: Public Goods