Public policy usually has aggregate effects, and policy makers look to these aggregate effects when doing most analysis. The exploration and analysis of policy that we did in supply and demand looked at the larger picture of policy impacts at the market level. Using the supply and demand model of a market we were able to say a lot about the groups of gainers and losers from policy options, whether the options were taxes, subsidies, quantity restrictions or price restrictions. But groups are made up of individuals. In this chapter we repeat the exploration of policy but look at a smaller section of those affected. We will be going down to the level of the individual.
During the budget flap of 1990, Herbert Stein, former Chair of the President's Council of Economic Advisors, in an article in The Wall Street Journal (10/11/90), addressed the issue of tax increases and expenditure cuts. Mr. Stein expressed how extensively government policies affect individuals.
"They affect the distribution of income, not only among people with incomes of different sizes but also among people with incomes from different sources and with different consumption patterns. They affect the allocation of the national output, not only between what we call public and private uses but also among private uses, such as automobile driving and private medical care. They affect incentives to behave in various ways, including working and saving but also other things."
The question is how the policies work through markets to affect individuals, and how individual reactions show up in markets.
It is important to keep in mind that markets are just collections of individuals, so if we can see how the individuals are affected we might have a better idea of what market level analysis means. Just as cold weather makes the activity of a bee hive seem to cease because individual bees become less active, the impacts of policy in a market change the market behavior because the behavior of individuals in the market changes.
Going down to the individual level offers some distinct advantages. Earlier much emphasis was given to knowing the goals of the policy. In general, policies are designed to encourage or discourage some behavior, or simply to raise revenue. For example, in contrasting the effectiveness of a tax in meeting objectives it was important to know if the tax was implemented to raise revenue or discourage consumption. By looking at how the tax affects individual consumption we can assess and compare the utility effects of different taxes. Thus, if the goal is to raise revenue the tradeoff is between utility and revenue, rather than consumption and revenue. For equal revenue taxes it is possible that utility loss is greater for the good with a smaller quantity impact. It becomes important, therefore, to understand the possible individual utility effects of policy alternatives, as well as to understand the global or market-wide effects.
In the earlier analysis most welfare transfers came about from changes in consumer and producer surpluses. Here, with the focus on utility maximization, we will look at the welfare changes for individuals, looking directly at changes in utility levels. While consumer surplus is related to utility, the direct link between the two is left until the next chapter, when we derive individual demand curves and then add them together into the market model of demand.
Earlier, policies were classified into three categories; direct policies on prices,
direct policies on quantities, and indirect policies that consisted of taxes and
subsidies. In this chapter we will keep that same basic framework. Again, applications
figure heavily into the presentation. Applications are important as we contrast different
policies, for one thing that should come out is that alternative policies can have
different utility effects, even when the policies are equally effective in achieving the
objective.
Rent control, minimum wage, state mandated liquor prices; these are all examples of price restrictions - controls that often keep the price of a good from finding its equilibrium level. At the market level we saw that one result of price caps is excess demand. The quantity demanded exceeds the quantity supplied and so there are shortages of the good. Thus, individuals may not be able to consume as much of the good as they desire. Analogously, price floors cause excess supply. However, with excess supply individuals can get all of a good they want, so market inefficiencies are much less apparent at the individual level.
When we analyze policy effects at the individual level it is important to keep in mind that desired consumption and actual consumption may differ. In a market the result of excess demand is that some desired consumption goes unfilled. Consumers cannot get all they want of a good at the prevailing price, and thus must allocate their resources in a way that gives them less utility than if the desired demand was met. This becomes clearer in chapter 6 when we relate individual demand curves to market demand curves.
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Price ceilings pivot individual budget constraints much the same way price changes are illustrated. In figure 5.1 the original price of good A is Pa1. The person shown maximizes his utility at point 1, consuming A1 of good A and B1 of good B. Imposition of a price ceiling, Pa2 which is less than Pa1, pivots the individual's budget constraint outward. This is the only change of which we can be sure.
The effects of the price ceiling on consumption depends on the individual's
preferences. In figure 5.1 the consumption of A and B are both shown to increase. However,
had the indifference curve been tangent to the new budget constraint at point 3 or point
4, as shown in figure 5.2, there could have been an increase or decrease in the
consumption of either good. One thing that is certain, however, is that as long as this
person consumes some of good A, his utility would increase if the price of A is
lowered and he can consume at his utility maximizing combination.
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Often, however, shortages keep this from happening. With the price control on A a person might want to increase her consumption up to A2, as shown in figure 5.3. Shortages may prevent her from doing so, forcing her to consume less A than desired. Her consumption is constrained to the left of A2 on the upper portion of her budget constraint (say point 4 in figure 5.3), which gives a level of utility lower than U2. In fact, if the shortages that result are so severe that she cannot even get A3 of good A, her overall utility is lower than if no price controls had been implemented.
Rent controls in New York city and elsewhere offer an example of an alternative outcome from individuals not being able to meet their desired consumption. In this case some consumers are unable to get any of the good at the controlled price while others get all they want. Thus, if a person can find a rent controlled apartment she finds herself facing Pa2 for an apartment, and purchasing A2 (see figure 5.1 again). But, if unable to find a rent controlled apartment she must pay the higher price (Pa1), and consumes only A1 of housing.
Price floors also pivot the individual budget constraint, but of course this time the movement is inward. A minimum price of Pa2 which exceed the (previous) market equilibrium price of Pa1 (see figure 5.4) lowers utility to U2. How much consumption of goods A and B will change again depends on the individual preferences. In this case, however, there should be no shortage, and consumption at point 2 should actually occur.
Both price floors and price ceilings change the price the consumer pays for a good.
Thus, as with any price change, there is an income and a substitution effect. Price floors
raise the relative price of the good and makes the individual consumer relatively poorer.
The purchasing power of her income has decreased. Price ceilings have the opposite effect.
But, while we can say unambiguously that any consumer of a good is hurt (in the sense of
enjoying less utility) from a price floor, we cannot say that consumers are unambiguously
helped by price ceilings. The shortages that may occur from a price ceiling can leave some
individuals at a disadvantage.
Quantity restrictions at the market level often lead to shortages. As shown in figure 5.5, if market output for good A is limited to A2, less than the market equilibrium quantity of A1, then market price will increase to P2 from P1. Individuals find themselves facing a higher price for the good, but since price is determined by the demand curve in this case, there is no shortage of the good. Instead, the price increases so that the quantity demanded just equals the allowed production of A2.
The quantity restriction essentially changes the supply curve, making it vertical at A2,
and the market is allowed to work. Individuals do not see any shortage. Individual
consumers see the quantity limit as a price increase for A, with the concomitant pivot
in the budget constraint, as illustrated in figure 5.6. The result is a utility loss for
the individual from U1 to U2. There is no shortage but quantity
demanded is smaller because individual utility maximization responds to the price increase
as determined by the market quantity restriction. The peanut example presented in chapter
3 works just this way. In fact, as noted in that example, the price increase is large
enough to almost eliminate any government subsidy that accompanies the output
restrictions. Instead, peanut consumers bear the burden of the restriction by paying
higher prices. Of course, people also eat fewer peanuts because of the quantity
restriction.
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An alternative type of restriction hits the individual differently. With a market quantity restriction individual consumers still maximize their utility but at the market determined price. The price is just higher. But suppose instead that the quantity restrictions are on an individual basis. As illustrated in figure 5.7, the result is a utility loss for the individual from U1 to U2. At a market prices of PA and PB, this person would like to purchase A1 units of A and B1 units of B. An individual quantity restriction that allows the purchase of only A2 units of A will lower her utility. She spends the rest of her budget on good B, and is not maximizing her utility. Interestingly, we get the same effect if instead of limiting the consumption of A we require a minimum consumption of good B.
There are numerous examples of both these types of restrictions. Limited consumption of
essential goods is common during times of crisis, like war. During World War II eggs, milk
and cheese were rationed, effectively stating a maximum amount each individual could
consume. While not as obvious, we have already talked about minimum consumption standards
in chapter 4. Requirements for specific employee benefits, such as mandated health
benefits, or safety requirements, limit employer and employee flexibility in maximizing
utility.
The government is very involved in individual behavior. We are cautioned by government economists that the savings rate is too low, putting the United States at a disadvantage against Japan and Germany for economic growth. We may own a home instead of rent because interest is deductible. Or, our use of child care or medical services is cheaper or more expensive because of government rules. Most of us are effected in many ways by government policies that encourage or discourage some consumption. Often, the effect is hidden by the use of indirect policies - taxes or subsidies - rather than quantity or price restrictions. The reason for taking this path is not always clear, but often hinges on political grounds. Direct limitations are obvious and may restrict an individual's freedom of choice, as we saw with constraints on job safety and rent control. Although one result of price and quantity restrictions can be changes in relative prices, they are often viewed more as directly regulating behavior and restricting market activity. Taxes and subsidies, alternatively, are imposed directly on prices while letting the market work to change behavior.
Looking at the mechanics of taxes and subsidies within the model of a utility
maximizing individual allows us to more clearly understand how these policy tools affect
individual behavior and policy outcomes. As we saw in chapter 3, taxes tend to discourage
activities and subsidies tend to encourage them. But further, taxes tend to lower utility,
and subsidies to raise it. In either case the market determines an equilibrium, so there
are no instances of individuals not being able to satisfy their (constrained) utility
maximizing preferences.
Taxes have two major, often complementary, uses. They discourage the consumption of the good being taxed, and at the same time raise money. Within the utility maximizing model we have been using, taxes show up as simple changes in relative prices or income, depending on the type of the tax.
In chapter 3 the taxes analyzed were on particular goods. Thus such taxes changed the price of the good along the demand curve. The same type of tax here rotates the individual's budget constraint, much the same any price increase does. This is illustrated in figure 5.8. If good A is taxed but good B is not, the budget constraint is pivoted inward. Any consumer who purchases some of good A will suffer a utility loss, as shown by the shift from U1 to U2. There is a negative substitution effect for good A, and if it is also a normal good, the income effect is also negative. Usually we get the result that the consumption of good A will decrease if it is taxed. Such a result is desirable if the goal is to limit the consumption of the good.
Remember that a per unit tax on a good pivots the budget constraint inward. Thus there is an income and a substitution effect. We can use those two effects to figure out how much an individual pays with a per unit tax. Figure 5.9 shows the effect of a tax on good A on an individual's budget constraint. The tax pivots the constraint inward from the light dotted line to the solid line. If after the tax this person maximizes her utility at point 1, the amount of taxes she pays for consuming good A is the distance between points 1 and 2 (the vertical distance between the old and new budget constraints at the new consumption of A) times the price of B. The purchasing power loss of the tax is equivalent to an income change of M* to M.
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Mathematically we know that M=PaA1+PbB1 and also M=(Pa+Ta)A1+PbB2. Therefore Pb(B1-B2)=TaA1. The right-hand side of this last equation is the tax the individual pays. If the price of B is normalized to equal one, the vertical distance is exactly the tax the individual pays.
We can use this result to compare the utility burden of alternative taxes on the individual. When the goal is to raise revenue, as it was during the deficit reduction negotiations of 1990, a question arises of which good(s) should be taxed. In chapter 3 one conclusion we found was that revenues are maximized (on a per unit basis) if demand for the good is inelastic. But from a policy perspective there is another interesting issue; to minimize the utility loss from taxes.
It is easy to compare the impacts of alternative taxes on a particular individual. Suppose a person consumes two goods, A and B, at respective prices Pa and Pb, with an income of M. This gives as a budget constraint the dotted line in figure 5.10. A tax of Ta on good A pivots the budget constraint to the light solid line. So far we have the same graph as figure 5.9. We can find a tax on B that would have the same revenue impact on this person by pivoting the budget constraint at the A intercept so the point of utility maximizing consumption generates the same revenue. This is the heavy solid line, with consumption at B4 and A4. The distances between B1 and B2, and between B3 and B4, are the same indicating the tax this person pays is the same whether the tax is Ta or Tb. The question then is simply where utility is greater, at point 1 or point 2? If this individual's preferences are skewed more towards good A then most likely point 2 would yield the higher utility, and she would prefer the tax on B. Alternatively, if preferences lean towards B, then point 1 would yield the greater utility, and she would prefer the tax on A. Later in this chapter, however, we will see that overall an individual can achieve higher utility with equal revenue taxes that do not change relative prices.
This could be one reason that food is often excluded from sales taxes. Since food is a
necessity, many people argue that taxes on food place an undue burden on the poor. But
there is also an economic reason for excluding food that does not rely on income
distribution. Food, because of its nature, usually figures highly into individual
preferences. Equity grounds argue that because individuals cannot choose to avoid the tax,
it is an unfair one. By excluding food from a sales tax the tax is imposed only on those
who "choose" it by preferring the good being taxed.
When some outside group like the government or a charitable organization assumes a share of the cost of a purchase it is called a subsidy. Unlike taxes, which have the dual effects of raising money and changing behavior, subsidies have the single focus of changing behavior. Although the support for subsidies can come from several courses, the purpose of subsidies is to encourage some activity. A subsidy can be imposed as a "safety net" for an individual, for example making sure food and housing is affordable; to ensure the provision of certain goods, such as government support of the so-called "orphan" drugs (these are drugs that cannot be produced for a profit because of limited demand); or simply because some interest group has successfully lobbied for support, as when residents of North Dakota arranged federal support to renovate the boyhood home of Lawrence Welk. Fans go to sporting events more frequently because local government subsidizes the teams with free stadiums and workers go to doctors more frequently than they would if paying the bill themselves because employers subsidize health care consumption with insurance. Because subsidies are costly they imply welfare transfers. Someone must provide the financial support, and that person shows a utility loss from diminished income. But here our focus will be on the recipient side of subsidies.
When we looked at the effect of subsidies on market equilibrium, we saw that, in general, both buyers and sellers in a market derived benefits from subsidies. Moreover, subsidies usually increased the equilibrium quantity. It is in this respect that subsidies are seen as encouraging activity. Here we will explore how subsidies effect the consumption and utility of individuals, to make individuals better off.
Subsidies are simply an agreement by an outside party to pay part of the price of a good. For the individual this means the price of the good has decreased. Thus, like a tax, a subsidy pivots an individual's budget constraint. However, while the tax pivoted the budget constraint inward, a subsidy pivots it outward.
The effect of a subsidy on consumption is illustrated in figure 5.11. The individual has an income, M, which he uses to purchase two goods, A and B, at respective prices Pa and Pb. Without a subsidy his budget constraint is the light solid line, and he consumes at point 1. A subsidy of S per unit lowers the price of good A to this person, to Pa-S, pivoting the budget constraint outward to the heavy solid line. His new consumption could be at some point like 2.
From the perspective of an individual a fall in the price of a good that results from a subsidy can be treated like any other price decrease. The budget constraint pivots outward, the relative price of the good decreases, and there is an income as well as a substitution effect.
We know that the substitution effect will always skew consumption towards the
subsidized good, because the subsidy lowers the price. But as with any good, the direction
of the income effect will depend on the individuals preferences and the characteristics of
the good. If it is a normal good the income effect will also show increased consumption.
However, if the good is inferior, the income effect will be negative, and thus will
mitigate any substitution effect to increase the consumption of the good.
Many of the things that come to mind when people think of subsidies are support programs for the economically disadvantaged, things like welfare, food stamps, and housing subsidies. Within these programs there are targeted goods, housing and food stamps, and more general assistance like Aid to Families with Dependent Children, which provides cash transfers which the individual can then spend as he or she sees fit. There is a tradeoff between targeted income subsidies and cash assistance.
But most people face similar tradeoffs. It is often the case that labor unions negotiate packages of benefits which include subsidies for certain goods (e.g., health and life insurance, and retirement benefits) as well as salaries or wages. The question we want to address now is which type of benefit leaves the individual better off, and why policy makers often choose the opposite approach. We will focus on assistance programs for the economically disadvantaged, although some of the conclusions are applicable more generally. Because the nontaxable nature of most fringe benefits adds another element to the analysis, the carryover is not exact. However, if fringe benefits ever become taxable, many of these arguments will hold directly.
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Figure 5.12 shows the effect of a cash grant of an amount G on an individual's budget constraint. If previously his income was M, he now has M+G to spend over two goods, A and B. Thus, M+G=PAA+PBB. Clearly, this is a simple income change and gives a parallel shift of the budget constraint, with consumption moving from point 1 to point 2.
Suppose instead the assistance is targeted towards good A by offering a subsidy of S per unit. The budget constraint pivots as shown by the dotted line in figure 5.13. For a fair analysis, the cost of the subsidy for the individual should be the same as the cash grant. Thus, the utility maximizing point of consumption if good A is subsidized (point 3) should occur at the intersection of the pivoted and parallel budget constraints. (As with taxes, the cost of each program will be the same if the vertical distance between the new consumption point and the old budget constraint is equal.)
Notice that U2 is further out than U3, so this person would achieve a higher level of utility with a cash grant than with the subsidy for good A. But the amount of A consumed will be greater with the subsidy than with an equal cost cash grant. The subsidy lowers the price of A, so there is a substitution effect towards it. There is, however, a utility cost for the substitution effect.
Why then do policy makers often prefer targeted subsidies rather than cash grants? Usually because they are interested in something other than the utility of the recipient. For example, society may feel comfortable providing housing or food for the economically disadvantaged, but would not be willing to subsidize much consumption in other areas. When Pete Wilson became governor of California in 1991 he proposed changes in that state's welfare program that clearly carried such sentiments. Wilson's proposal was to cut AFDC payments by $61 but increase food stamps by $20. Wilson came under fire by stating that his program would allow welfare mothers "to pay the rent." But, he added, "(t)hey will have less for a six-pack of beer." (Spokesman Review, 1/1/91).
Additionally, other interests often intercede. Food stamps were originally proposed through the Department of Agriculture as a way of increasing the demand for agricultural products. The original intent was to help farmers, not the poor.
Similarly, even without tax considerations, employers have an incentive to put
compensation into forms that improve worker productivity. Health insurance, subsidized
educational and training benefits, and wellness programs all do this. Thus, the firms
offer compensation in the form of subsidies for consumption rather than as straight pay.
There is another kind of policy intended to encourage consumption that is used quite often. "In-kind" programs give recipients an amount of a particular good rather than a cash grant or a price subsidy. Public housing, cheese give aways, Medicaid and food stamps are examples of this kind of program in the welfare system. Medicare, the health insurance program for the elderly, also has elements of an in-kind transfer program.
Under an in-kind transfer program the recipient gets a fixed amount of the good. In figure 5.14 an in-kind transfer of good A is illustrated. With an income of M and prices PA and PB for goods A and B, the original budget constraint is line 1. If the person shown gets A1 of good A just for enrolling, the budget constraint shifts out to line 2. If desired, additional units of A can be consumed. As illustrated, the effect is very similar to a cash grant. It is a parallel shift outward, the only difference being that the maximum amount of good B that can be consumed has not changed. For most individuals, the result is equivalent to getting the cash equivalent of the in-kind transfer.
Of course, most programs are not as simple as the one illustrated. This graph applies to non-cost programs that can be supplemented. The federal cheese give away is one such program. Many of the others, however, require some more commitment on the part of the recipients.
Often the in-kind transfer requires some minimal purchase before consumption of the subsidized good is supplemented. Parts of Medicare, for example, requires the participant to enroll and pay a small premium. After this commitment, the in-kind health insurance is provided. Food stamps best illustrates this point.
Figure 5.15 shows the typical effect of the food stamp program on an individual budget constraint. Under food stamps a recipient must commit a certain amount of his or her income towards food, at which time the program supplements food purchases. Suppose, for example, that a person has an income of M to buy food and all other goods. Food stamps could require that he spend S dollars on food, at which point the program doubles that amount. Essentially, he gives S dollars to the program officer, who then gives him back 2S dollars worth of food stamps. The recipient can of course spend more than S on food, but then pays with real dollars. If he wants to spend less than S on food he cannot get any food stamps. Thus, the effective budget constraint is abcd, with a flat horizontal section between b and c.
Clearly most individuals achieve a higher utility by participating in the program.
Before food stamps consumption might be at some point e or f. After food stamps
consumption moves outward along the segment of the budget constraint between c and d. The
exact points of consumption depend on indifference curves. We explore this in end of
chapter questions.
Earlier in this chapter we contrasted the utility effects on an individual from alternative per unit taxes on goods. We compared the individual's utility loss from sales taxes on one good or another. But would this person prefer even more a revenue neutral tax on both goods? Sales and excise taxes often exclude things like food and medical care, and sometimes clothing, on equity grounds - a feeling that necessities should not be taxed. However, given that people will consume the taxed and untaxed goods, they are better off if all goods are taxed
Look at figure 5.16. A sales tax at a rate of s which is applied only to good A pivots the budget constraint inward (heavy solid line). (The sales tax increases the price per unit of A to (1+s)Pa.) If utility maximizing consumption is at point 1, then taxes this person pays equal B1-B2. The price of B has been normalized to one for convenience. An equal cost (to this person) sales tax applied to both goods would be at a rate of t, and would be a parallel shift inward of the budget constraint (light solid line). Because of the relative positions of the A intercepts, we know that t is less than s. Moreover, there is always a point on the lower part of this budget constraint which gives a higher utility than point 1. The slope of the budget constraint with a tax only on A is (1+s)Pa. If the tax is applied to both goods the slope is Pa, which is flatter. Thus, the MRS at point 1 must be greater than Pa, indicating that along the budget constraint for a tax on all goods, utility can be improved by substituting A for B in consumption. Utility maximization occurs at some point like 2.
The idea of optimal taxation is not an idle academic concept. Especially when the goal of the tax is to raise revenue, policy makers often strive to find a system that minimizes the burden of the tax. Economists use the term excess burden to characterize a utility loss from a tax that exceeds the minimum necessary utility loss to generate a given amount of revenue. In figure 5.16 we saw how a sales tax on all goods hurt an individual's utility less than a sales tax on a single good. If you look at that figure, the same revenue sales tax on all goods left the individual with a utility level of U2, while the single good tax (on good A) left a utility level of U1. In this case, the excess burden of the single good tax is the difference between U2 and U1.
Let us look at excess burden from a different view. In figure 5.17 the equivalent valuation measures a lump sum tax, V, which yields the same utility loss as a tax that has some excess burden (in the case illustrated it is a single good sales tax). A sales tax of s on good A alone pivots the budget constraint inward as shown. Optimal consumption with the sales tax is at point 1. Alternatively, a lump sum tax of V, called the equivalent valuation, would cause a parallel shift in the budget constraint with optimal consumption at point 2.
The excess burden can be measured by how much more tax revenues would be generated by the lump sum tax for the same utility loss. The dotted line shows a lump sum tax, V*, that generates a revenue equal to the revenue generated by the sales tax on good A. We know this to be true because the budget constraint goes through point 1. V*-V is a measure of the excess burden of the sales tax on A.
Lump sum taxes are equivalent to sales taxes on all goods. Thus, we show M-V=PAA+PBB, but can find a sales tax, t, which if applied to all goods would have a similar shift. The sales tax applied to all goods means that the budget constraint becomes M=(1+t)[PAA+PBB] or M/(1+t)=PAA+PBB. Thus, we need M-V=M/(1+t) or t=V/(M-V).
An excess burden appears because taxes that are applied unequally to different goods distort relative prices. Instead of just having an income effect, there is a substitution effect, away from the taxed good, as well. Consumers have an incentive to avoid some of the tax by shifting consumption away from the taxed good and towards the untaxed good, an additional distortion. However, this opportunity for tax avoidance carries the price of excess burden.
Excess burden from taxes applies not only across goods but also across time periods. Susan Woodward, in her defense of the mortgage interest deduction (see Box 5) argues that
"Given that over a lifetime we all have a certain amount of tax to pay, the best tax system is not one that imposes taxes disproportionately at any point. For example, even though education is correlated with income, it would not make sense to replace part of the income tax with a tax on college education, payable at graduation. Similarly ... people would not choose to give up the mortgage interest deduction in exchange for lower income tax rates, because the deduction helps smooth [tax] expense burdens over their lifetimes."
A question then is why policy makers use inefficient taxes. Mostly it is because of equity issues. Economically disadvantaged individuals spend a greater proportion of their incomes on things like food and housing than do wealthier individuals. By not taxing food we shift more of the tax burden on to people in upper income levels. But Ms. Woodward counters "by taxing [middle- and upper-income people] in a less burdensome way, we can improve their situation and ultimately get more revenue from them. Those who care about redistribution to the poor should want the most efficient of taxes to be imposed on the well-to do."
Great Britain recently experimented with efficient taxation by imposing a lump-sum capitation tax, termed the "community charge," on all individuals 18 years of age and older. The tax, which was imposed beginning in 1989, is equal for each person regardless of income. It has been widely unpopular, mostly because it was accompanied by large increases in the overall tax burden. Although proposed as an equitable solution to taxation, the main virtue of the tax is its efficiency. While income taxes discourage work (see the appendix to this chapter) and property taxes discourage investment in property and building, the poll tax does not affect consumption choice.