Do You Know That? The Distorting Effect of Taxes

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En provenance du cours de École des Ponts ParisTech

Electric Vehicles and Mobility

65 notes

École des Ponts ParisTech

Electric Vehicles and Mobility

65 notes

The purpose of Electric Vehicles and Mobility is to help you, whatever your profile, your training or your country, find your own answers to questions such as: - Will electric vehicles be the last to be allowed in megalopolises in the 21st century? - Does the environmental gain from vehicle electrification justify heavy investment in charging infrastructure? - Are electric vehicles only for wealthy people in developed countries? This course will allow you to acquire elements from engineering science, sociology, environmental science, political science, economics, management science, in order to evaluate, analyze and implement the diffusion of electric vehicles where their use is relevant. This MOOC is the English version of Mobilités et véhicules électriques; in the lecture videos, the teachers speak in French, nevertheless their presentation is in English and English subtitles are available. Groupe Renault and ParisTech schools have been working together for almost 15 years on topics related to sustainable mobility. Together, they created two Master programs (Transport and Sustainable Development in 2004, Mobility and Electric Vehicles in 2010) and the Sustainable Mobility Institute Renault-ParisTech in 2009, to support ongoing changes. Electric Vehicles and Mobility is the result of this shared history and was developed from a course delivered within the Master Mobility and Electric Vehicles, led by Arts et Métiers ParisTech in partnership with Ensta ParisTech, Mines ParisTech and École des Ponts ParisTech.

À partir de la leçon

Chapter 3 – Economic Analysis

<p>We will use in this chapter the economic analysis to shed light on the choice between thermal and electric car.</p><p>After presenting a few tools and concepts of economic analysis in the video <em>More on method</em>, we will use this analytical framework to evaluate the costs and benefits associated with the electrification of the fleet, from the point of view of the buyers as well as that of the producer, taking into account the cost of batteries and charging infrastructure, but also the environmental gains and tax revenue changes for the State.</br>Then we will discuss the macroeconomic issues of the electric vehicle before looking at the demand and potential demand for electric vehicles at the micro level.</p><p>The evaluation of this chapter, in the form of a graded quiz, is in the following section. This evaluation concerns only the videos <em>Lecture</em> and is required to obtain the certificate.</p>

Cost/Benefit Analysis Applied to Electric Vehicles 1/29:12

Cost/Benefit Analysis Applied to Electric Vehicles 2/212:17

Do You Know That? The Distorting Effect of Taxes5:19

Do You Know That? The Cost Recovery Ratio3:26

Rencontrer les enseignants

Émeric FORTIN
Head of the Master in Transport and Sustainable Development
Direction of Studies, École des Ponts ParisTech
Virginie BOUTUEIL
Researcher
LVMT (City Mobility Transport Lab), École des Ponts ParisTech

[MUSIC]

In this video, I will explain the Meaning of the Distorting Effect of Taxes.

We will consider a classic market on which the demand aimed at the producer decreases

according to the price of the good.

The higher the price, the fewer the consumers ready to buy the good.

Conversely, from the producer's point of view, the higher the price at which

the good is sold, the more producers will want to to offer this good in the markets.

When this offer and

this demand meet, you get a simultaneous equilibrium both in price and quantity.

From there, we can determine the producers profit which is linked to the fact they

can sell the good at the p* price while the offer curve showed that they

were ready to sell it cheaper.

This creates a profit for them.

The blue area represents the producer's profits.

Symmetrically, we can define what's called the consumer's surplus,

that is to say, the fact that they benefit from paying the good at a cheaper price

than they were willing to pay it.

We see that the first purchasers were ready to buy

the good at a rather high price but they only pay it the p* price.

They will have the opportunity to spend these money on other markets and

this will increase the satisfaction.

There is an equivalent with the surplus notion for

the consumer to the notion of profit for the producer.

We see that if we left markets spontaneously we'd find the balance.

For some of the consumers surplus and

the producers profits is spontaneously maximized.

Now, let's just add some taxes in this market, such as a VAT.

We tell the people that the shoes is no longer 100 Euros but 120.

Purchasers will then say that in that case, they will buy shoes less often or

in smaller quantities.

They adjust the quantity they consume after the implementation of a VAT.

This state can collect new revenues corresponding to the VAT rate multiple by

the quantity actually bought by consumers.

We see that the consumer surplus is reduced as well as the producers profits.

We see a red area here which corresponds to wealth that is not created anymore.

It is not collected by producers, consumers, or the state anymore.

It is net loss of wealth.

It means that this wealth is not produced anymore because of the implementation

of a VAT.

This distorting effect, this loss of wealth created by the implementation of

VAT is not linearly related to the VAT rate.

When the VAT rate is doubled, what do we see?

We see that consumers will adjust and

reduce even more the consumption of the given good.

It means that in terms of revenue it is not necessarily favorable since the orange

rectangle is not necessarily larger than the previous blue rectangle.

It depends on the consumers reaction to the increasing VAT rate,

thus to the price elasticity of conception on this market.

We also see that the loss of wealth created by doubling the VAT rate

is more than twice as important as what we previously had.

There is indeed a wealth lost that is not linearly related to the VAT rate.

Is VAT the only distorting tax?

No, let's take the example of an income tax.

When we add an income tax, what happens?

Of course, the demand aimed at producers in the market depends on the income level.

When an income tax is implemented, the demand decreases,

since the consumers available income has decreased.

This leads to surplus loss corresponding to the red area here.

It is important to understand that when a tax is collected,

it is not a simple transfer from the taxpayer to the state.

When taxpayer adjusts the demand of behavior

after the implementation of this tax, there is a distorting effect.

The size of the cake being shed between the state, producers, and

consumers is reduced.

Most taxes are distorting, since most acts as it adapt to

the implementation of a VAT, an income tax, etc.

Some taxes, such as the profit tax, are not distorting since there is

an interest in maximizing benefits even when they are taxed.

All taxes are not distorting but most are.

The distorting effect is usually non-linear.

It's grows faster than the tax rate.

Finally, in developed countries, tax shifting tells

environmental taxes on polluting emissions generates revenues.

Which creates an opportunity to decrease preexisting taxes that generated

distorting effects.

This might be a way to improve the un-remmital quality, and the economic

situation, by reducing the average distorting rates of the tax system.

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