The midterm will be worth 35% of your class grade. If you leave any major questions blank, you will get 20% of the points for them (the “BS eliminator”). Handing the exam in on time will also give you a small bonus. You should bring a calculator to the exam.
This exam covers lectures from the beginning of the class up until Monday, posted notes, Saari, Shepsle and Bonchek, Slemrod and Bakija chapters 1,3-5, Gruber chapters 1- 9, 19-20. (Not on this exam: Gruber chapter 21.)
Bring a calculator (any kind).
Gruber
How big are State & Local spending and Federal spending relative to US GDP?
What share of Federal spending is defense? What share is Social Security? What share is Health? What share is net interest?
What share of federal revenue comes from income taxes? Corporate taxes? Payroll taxes?
How does the US compare to other OECD countries in terms of % of GDP in government spending, debt?
What have been the BIG changes in the above over time?
In particular: Consumer & Producer surplus, TANF analysis, Social welfare functions
Deficit versus debt
Entitlement versus discretionary spending
PAYGO (Warning, there’s another meaning for PAYGO in the context of pensions.)
States and ex ante and ex post balanced budget requirements
Cyclical versus structural budget deficits
Cash versus capital accounting in government budgeting (governments should run deficits if they are building up a capital stock of use to future generations)
Static & Dynamic scoring (also in Slemrod and Bakija)
“What does the U.S. Government Do?” (pp. 109-113)
“Background: Savings and Economic Growth” (pp. 114-115)
Certainly: DWL, Coase
Not: “Uncertainty about Costs of Reduction”
Particularly issues with “The Foundations of Government Failure.”
In particular:
Figure 19-1. How have the major sources of US federal tax revenue changed over the past 50 years?
How do payroll taxes compare to income taxes for most households?
Statutory versus economic incidence.
Grubers three rules of tax incidence (Section 19.2)
Balanced budget incidence
Definitions “partial equilibrium tax incidence” and “general equilibrium tax incidence” but nothing else from the section on General Equilibrium Tax Incidence (Section 19.3).
Congressional Budget Office (CBO) assumptions on tax incidence.
What have happened since 1979 to the shares of income and shares of tax payments by the top and bottom quintiles of the income distribution? (Table 19-2)
Current versus lifetime incidence
Understand that increasing marginal tax rates causes DWL to grow more than linearly, and that incidence is related to the relative elasticities of supply and demand, but otherwise don’t worry about the math in the Appendix to Chapter 19.
Don’t worry about the DWL elasticity formulas, just understand the effects of rising MTRs on DWL, and the effect of relative elasticity on incidence and DWL (inelasticity implies high incidence and low DWL, all else equal).
DWL grows proportional to the square of the tax rate! (As a first approximation, rule of thumb.)
Optimality of tax smoothing over time
Ramsey Rule for Optimal Taxation: Minimize DWL by setting marginal DWL to marginal tax revenue to be the same across everything that’s taxed. So the tax rate for each thing would depend inversely upon elasticities in that market.
From “Optimal Income Taxes” two points
Laffer Curve
By a Ramsey argument, equating MU(income)/MR(from a give % of taxation) across income groups implies higher tax rates on the higher incomes
Understand Tax-benefit linkage, such as in Figure 20-9.
“Empirical Evidence: A Group-Specific Employer Mandate”
Don’t worry about the appendix.
Is the US a high tax country, as compared to other wealthy industrialized countries?
How do income taxes, social insurance taxes, and state taxes compare in size?
What have been the post WWII trends in income taxes as a share of GDP, corporate taxes as a share of GDP, social insurance taxes as a share of GDP, and the top MTR?
How does the IRS definition of income differ from the Haig-Simons definition?
How do credits and deductions differ?
Not yet: AMT
What is the incidence of various major taxes?
What are some possible definitions of fairness in taxation?
How key are taxes to national prosperity, job creation, labor supply?
What is the fastest growing contribution to the budget deficit?
Not yet: Effect of taxes on risk-taking and entrepreneurship
Why is our tax system so complicated? What desirable properties in a tax system make it this way?
Single-Peakedness Condition
Winsets
Two dimensional voting: Figures 5.4, 5.5, and 5.6
McKelvey's Chaos Theorem: Figure 5.9
Spatial Elections
Sunset provisions and Zero-based budgeting