Teaching Materials on Income Tax
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Dr Margaret Bray, London School of Economics and Political Science
Published April 2008
The documents here are give a package of material on income tax, as used in a second year undergraduate microeconomics course for economics specialists at the London School of Economics. The material could also be used in a public finance course.
The material assumes that students are familiar with the standard theory of labour supply, and income and substitution effects applied to a diagram with "leisure" on the horizontal axis and "consumption" on the vertical axis. Some parts of the slides assume familiarity with compensated and equivalent variation, but this could be omitted.
The educational objective of the economics is to show students how these tools can be used to understand the impact of the income tax system on labour supply.
The package includes a class room discussion task, which both supports the economics and develops students' oral communication skills.
This background material is treated in any intermediate microeconomics textbook, see for example
Perloff, J.M. Microeconomics: Theory and Applications with Calculus, Pearson 2008, chapter 5
M.L. Katz and H.S. Rosen, Microeconomics, Third Edition, Irwin, McGraw Hill, 1997, chapter 5
W. Morgan, M.L. Katz and H.S. Rosen, Microeconomics, McGraw Hill, 2006, chapter 5
H.R. Varian, Intermediate Microeconomics, Norton, any edition, chapter 9.
The details of the income tax system change year to year.
The HMRC (Her Majesty's Revenue and Customs) site gives basic information on rates and allowances.
There is much additional material on the public finances at the Treasury Website
- PowerPoint Slides for Lecture
- "Worked Example: Income Tax and the Budget Constraint" which gives a more detailed treatment of some of the material in the lecture.
- Multiple choice questions and answers on income tax which test students' understanding of the worked example.
- Material for a class room discussion session on income tax consisting of