Ch7. The Government Sector

1
Ch7. The Government Sector

• Chapter Objectives
• Government Spending
• Types of the taxes
• The average and marginal tax rates
• Sources of government revenue
• Principles of taxation
• The economic role of the government
• The graphing of the CIG line

2
Ch7. The Government Sector

• Government Spending
• Federal Government Spending
• Where it comes from
• Social Insurance Receipts(34), Corporate Income
  Taxes(11), Other(5), Excise Taxes(4),
  Individual Income Taxes (46)
• Where it goes
• Direct Benefit Payment for Individual(50),
  National Defense(15)
• Net Interest(14), Grants to States
  Localities(15), Other Fed Operation(5)
• Reserve Pending Social Security Reform(1)

3
Ch7. The Government Sector

• State and Local Government Spending
• support public education(federal 6)
• police protection
• Govnt Purchases vs. Transfer Payments
• Y CIGX
• Defense, education, police, health,
  infrastructure
• Transfer payments cannot be counted in GDP.
• The largest govnt transfer is Social Security

4
Ch7. The Government Sector

• Taxes
• Average tax ratetaxes paid/taxable income
• eg. A person paid 2500 on a taxable income of
  30,000, how much is his/her ATR?
• Marginal tax rate additional taxes
  paid/additional taxable income
• eg. Suppose you had to pay an additional 300 on
  an additional taxable income of 15000, how much
  is MTR?

5
Ch7. The Government Sector

• Types of Taxes
• Direct Taxes (eg. Corporate income tax)
• Indirect Taxes(eg. Sale and excise taxes)
• A direct tax is one which is demanded from t he
  very persons who should pay it. Indirect taxes
  are those which are demanded from one person in
  the expectation and intention that he shall
  indemnify himself at the expense of another.

6
Ch7. The Government Sector

• Types of Taxes
• Progressive Taxes
• the more you earn, the higher you pay
• (eg. 1991, New Jersey tax rates )
• Proportional Taxes
• It place an equal burden on the rich, the middle
  class and the poor.
• Regressive Taxes
• It falls more heavily on the poor than on the rich

7
Ch7. The Government Sector

• Sources of Federal Revenue
• The Personal Income Tax
• The Payroll Tax
• The Corporate Income Tax
• Excise Taxes (sales tax)--3 of federal revenue-
  tend to reduce consumption of certain products
  --regressive tax-- tend to fall more heavily on
  the poor and working class, (cigarettes,
  gasoline, liquor)

8
Ch7. The Government Sector

• Sources of State Local Revenue
• The Sales Tax
• regressive tax, the higher proportion of poor
  peoples income is subject to this tax.
• The Property Tax
• Two Principles of Taxation
• Ability to pay vs. Benefits Received

9
Ch7. The Government Sector

• The Economic Role of Government
• Provision of Public Goods and Services
• Redistribution of Income
• Stabilization
• Economic Regulation