Public Economics Lectures Part 1: Introduction

Mandated Benefits: Incidence Formula
Analysis for a small t: linear expansion around initial equilibrium
where
(dw/dt + 1)D ′ = (dw/dt + α)S ′
dw/dt = (D ′ − αS ′ )/(S ′ − D ′ )
η S
= −1 + (1 − α)
η S
− η D
η D
= wD ′ /D < 0
η S
= wS ′ /S > 0
If α = 1, dw/dt = −1 and no effect on employment
More generally: 0 < α < 1 equivalent to a tax 1 − α with usual
incidence and effi ciency effects
Public Economics Lectures () Part 2: Tax Incidence 131 / 142