Taxation(Contribution)

This financial method is the most common in practice and it suppose that every customer
from public goods to pay to state(or another organism which is collecting funds) one tax which is
chosen by poll.

Tax Principles
The contribution represents imposition of taxes or contributions for state, in the sense of
gathering resources for state activities. In the countries which the private section prevails, the
state doesn’t have good resources.At the same time, public spendings represents an important
part of national incomings.To allow money for those spendings the state must obtain the
necessary income from private sector of economy – Fellow – Companies and Corporations.
Contribution has the role of moving resources from private using to state using. The contribution
politic is looking to realize that move those resources without a lot of damages or just a few
harmful social and economic effects.

Contribution principles can be defined like a set if ideas in systematic vision. The
principles of a GOOD contribution were proposed by many specialists like this bellow :

In “Avutia Natiunilor” (1776) Adam Smith formulated four maxims which must
guvernate fiscal politics of the state:

1.Every person from state must pay to sustain the state, how much its possible for their
incomes.

2.The contribution which everybody is forced to pay it has to be well stated and not
arbitrary. Date of paying,method , sum, they must be clear for everybody.

3.Every contribution must be charged at the time and manner which it appears to be
better for contributor to pay.

4. Any tax shall be so designed to remove and dispose of pockets population as little as
possible over as far as it brings the state exchequer.
 In the nineteenth century, German economic school added other principles of taxation.
From terms of this school, certain principles are taken from the following areas:

 Contributions are like states incomes

 Ethics
 Econimic politics
 Administrative and legal frame

The dominant American economic science textbooks do not attend school German. They
summarize the principles of taxation in the following scheme:

 a tax system must not distort the optimal allocation of production factors in efficient
markets;
 it must be clear
 it must be transparent and definitive
 it must be cheap and collected.

It is clear that the principles of Adam Smith was not complete, but these ideas put and
more emphasis on the economic effects of taxation mainly due to the development economic.
However, the content of these general principles has changed considerably. In Century
Eighteenth main problem was that of fairness - to abolish privileges. Today, the main the
problem would be progressive or contributive.Principiile capacity can be interpreted in many
ways, and their interpretation depends on how they are treated as the contradictions between
efficiency and equity.

Principles of taxation can be divided into issues of equity and efficiency. From another
perspective they can be divided into two general groups. The first group is the principles
targeting positive tax effects. This is a 'technical' for minimize tax costs.

The second group of principles spotted on issues of tax policy, the "values". This is a
regulatory approach that describes policies and fair systems (Holcombe, 1987) .Of course, there
may be several levels of treatment principles of taxation issues. What follows is just one of the
possible approaches. First we will discuss the issue of equity.
 The amount paid by each consumer is not proportional to its consumption of public good
and usually is the same for each. But the total amount can be determined to establish Pareto
optimal in the economy, and then will determine the amount to be paid individually.

RESTORING PARETO OPTIMUM

A decision is Pareto - optimum - unless it leads to improvement of the situation of an

individual without this lead to the worsening situation of others. The ideal level, an economic
system is Pareto optimal as long as no individual may be better off without another to carry it
worse. The concept is used in macro-economics but interpretations found in other social
sciences.

Of course decisions that violate the Pareto optimum should be avoided. However, we can
speak of Pareto optimum as long as we are interested in the possibility of equitable distribution
in relation to one criterion.

In the organizational managers are constantly forced to take into account many variables
and unpredictable economic requirements from various stakeholders. For example must balance
the demands of shareholders (who want value for your investment increase) and customers (who
are paying attention to every dollar spent) etc. If we add to the economic criteria and
psychological criteria, things get complicated. We can not consider Pareto optimum situation
where, among many employees, especially one that is being promoted (this will suppose a better)
and others have nothing to go worse.

Decisions are made taking into account the "psychological compensation" which is given
to those following a decision can lead a "worse". For example, shareholders will recover the
investment and profit expectations but after a longer period and customers will pay more buying
from a company that offered psychological advantages with the product purchased confidence,
guarantees, status. At the social level in democracies using "vote" that serves as a substitute and
psychologically.
 Used in organizational psychology "Pareto optimum" is just a thought exercise but can
lead to the formation of analytical and healthy attitudes on decision making, "who are affected
by the effects of a decision and how much?", "Is it possible to solve a problem by a decision in
which nobody loses? "

EXAMPLE :

In the novel "Typhoon" writer Joseph Conrad presents the following story:The ship led
by Captain McWirre from Thailand to China is surprised of a typhoon. During this time, the
Chinese who were transported home, after had worked several years in Thailand gets its money
in the ship's hold. After termination of typhoon captain has put the issue of how to divide the
amount found those who had lost so that every one may receive the amount that was it. The
difficulty of finding the answer was that, if he would have asked each of which is the amount
you have had, then the total amount that should have been returned were much higher than the
found (or in other words each would have required more than he had). The answer given to this
issue in the novel is that each Chinese to receive the same amount, with other words are divided
by the total number of those who have lost money. However, this response is not optimal,
because some will get less than they had and other Chinese will get more.But the revelation
principle assures us that we can establish a mechanism to restore optimum in the situation
described, that each of the actors to declare the actual amount they lost o.Un such mechanism
could be the next captain putting them to the following alternatives: either to declare the amount
you lost it, and the total amount claimed exceeds the amount found (ie at least a Chinese demand
more than lost)then no one will get any mechanism ban.Acest establish optimal behavior, as if at
least one player would not tell the truth then, on the one hand that loses the mind (if you require
more, then the total amount claimed exceeds the amount found - while the others are telling the
truth - then you will not get anything, and if required less - the fear that another to demand more
- then lose the difference between what was in reality and as requested.

This mechanism can be applied to the public good, especially if the subscription
equilibrium in which each player subscribes to the production of public good with the amount
you want. Another method of restoring optimum in the privatization of public sector There of.
Through privatization induce competition in some sectors, allowing withdrawal of government in
wage negotiations and pension funding, bringing new paying taxes and new revenues.
Among the methods of privatization can be mentioned:

1.Franchises

2.Subsides

3.Contracting

4.Vouchers

5.Voulunteering

6.Direct sales

7.Incitacion for taxation

Lindhal Balance
Lindahl balance is the expression of a decentralized methods capable of determining the
optimal production of public goods. Its realization is possible by organizing a probing on
individual prices. This means individualized price increases supported by agencies that require
more public good and the price reduction for those who require a smaller amount as to arrive at a
situation in which all require the same amount. However, the exploratory aims to verify whether
prices lead to equalize the amount of the required amount offered, namely the realization of the
Lindahl equilibrium occurs optimal amount of public goods.

Optimal production of public goods is studied through the correlation between the
amount of cash payment marginal and marginal cost, defining the optimal amount of public
good.The rigor of the analysis requires consideration of consumer preferences, given that the
amount of public good choice, the objective is the maximization of collective welfare based on
individual preferences.

Methods for determining the production of public goods Optimedia be taken into account
with subscription equilibrium or balance Lindh or discovery mechanism demand for public
goods occurs when the behavior called "rider" or the principle of majority voting.
There are two ways in which funds are obtained for the production of public goods:

1.Volunteer signature(agreement)

2.Compulsory taxation

The voluntary agreement is a way of material support of the production of public goods is
not very common in practice. The difficulty of this solution is the tendency of individuals to hide
their appraisal of the public good in order to ficonsideraţi non-beneficiaries and escape payment.

Consider an economy with m consumers in consumers' preferences are represented by a

utility function Ui(x, Mi) ( with Ux> 0, Uxx< 0, UM > 0, UMM < 0), where x is the amount of
public good produced (and consumed) and Mi the equivalent amount of private goods consumed
by the consumer i. The public regulatory power maximizing social welfare and social welfare W

i=1 aiUi(x,Mi),where ai is the weight given to the consumer of the

is adjustable single,W=∑m
by the State. Let Ri each consumer income which divides between paying unit price pi for the
public good and Mi consumed cantiatea x value of the goods consumption.The production of a
public good is done by a private firm that seeks profit maximization. The unit price at which you
produce a good unit will be considered public company: p = ∑m
i=1 pi and the total cost of

production is CT (x), the marginal cost is Cm (x). The profit function is π = p company π= p x -
CT (x). From the condition of maximizing resulting profit equilibrium condition for the firm,
ie p = Cm (x).
Each consumer will determine the optimal consumption of goods in the panel (the
private and public) in the utility maximization problem under budget constraint:
maxUi(x,Mi) = ui(x) + Mi
pi x + Mi = Ri
Pound assuming that utility is additive type formUi(x,Mi)=ui(x)+Mi .

In other words, the condition determining the Pareto optimum in the economy is the sum
individual prices adjusted to be equal to marginal cost and marginal utility sum of individual
consumption of public good. From voluntary exchange model reveal that each individual
consumes most preferred public good or optimal amount of public good to a given tax quota. In
practice, achieving a voluntary agreement is complicated by the possibility that individuals do
not express their real preferences and become illegal beneficiaries of the public good.
Compulsory taxation is a frequent way of material support of the production of public goods.
Total demand for public goods is determined by summing the individual requests of members of
society. For a private good is obtained by summing the total demand of individual applications
horizontally (at different price levels gather the required quantity of each person).
The problem is to determine the price that society is willing to pay for each unit of public
good. It is calculated by summing price that individuals are willing to incur public good
production, the amount of the price it is willing to support individual A and the price it is willing
to support individual B.
In conclusion, E. Lindahl has developed an exchange model in which there was a
correlation between the tax rate and the size of the public good. Equilibrium is reached when this
model each individual pays a fee (tax) equal to the marginal utility afforded to that good.
Consequently, it influences the amount that the individual is willing to produce different levels
of taxation. It is noted that production that is willing to provide increases as the rate of taxation
on drops. Also, the higher the tax incurred, the offer or the individual's disposition to produce
lower.

The Bowen – Lindhal – Samuelson Contiotion

To determine the condition Bowen - Lindhal - Samuelson (indicating how which produce
a public good relative to private goods) will leave the issue of maximize social welfare by the
public. For the production of public good power will charge you for every consumer fee under
perfect information
isti = pi x. Hence you + Mi = Ri. Fees collected from public power consumers will realize the
production of a public good without profit.

max∑m
i=1 aiUi(x, Mi)

t i + Mi = R i
∑m
i=1 ti = CT(x)
Observation : Condition B-L-S is verified in frame of Lindhal Balance because
∑m
i=1 ui(x) = Cm(x)

In reality, public power has no complete information on consumer willingness to pay and
in this case the production of public good will not be optimal (see rider problem). Equilibrium is
achieved when each consumer is allowed to contribute the amount that wishes (balance with
subscription) conclusion is suboptimal.

Balance of subscription

Another way to cover production costs is to let each determine the amount that the
consumer is willing to give for the production of a public good. In this case, however, is
suboptimal equilibrium is attained because consumers will be tempted and pay less than they
consume the public good. In this case, to rebalance public authority intervention is required to
implement a mechanism to obtain Pareto optimal. We assume that each user is allowed to
contribute to the public good production by an amount not imposed by the government but by a
voluntary contribution if the public good production function is x =g(T), with T = ∑m
i=1 tri there

fore the problem will solve every consumer will be to maximize individual utility on quantities
consumed of private property and that of the public good.