ABSTRACT
This chapter starts out with the economic theory of taxes using the supply-and-demand model. Referring back to Chapter 5 on welfare analysis, it shows how economists may determine that taxes generate economic inefficiency. The second section provides an overview of the tax system in the United States, including data trends. Information on international tax systems data is given to provide a context to the U.S. data. The issue of tax progressivity considers how tax rates change based on income. The chapter concludes with a summary of the economic research on the relationship between taxes and economic growth, showing that low taxes do not necessarily spur higher growth rates.
