MGGMG 503

Review Session

Siddha Raj Bhatta

 Public Goods

• Characteristics of Public Goods

• Public goods are non-rival in consumption, meaning
that a given quantity of a public good can be enjoyed by
more than one consumer without decreasing the amounts
enjoyed by rival consumers.
• nonexclusion, implies that it is too costly to develop a
means of excluding those who refuse to pay from
enjoying the benefits of a given quantity of a public good.
• Pure public goods vs. pure private goods are two
extremes.
 Public Goods

• Characteristics of Public Goods

• Public goods are nonrival in consumption, meaning
that a given quantity of a public good can be enjoyed by
more than one consumer without decreasing the amounts
enjoyed by rival consumers.
• nonexclusion, implies that it is too costly to develop a
means of excluding those who refuse to pay from
enjoying the benefits of a given quantity of a public good.
• Pure public goods vs. pure private goods are two
extremes.
 Public Goods

• Pure public goods vs. pure private goods are two

extremes.
• Goods and services have been divided into four
categories:
• 1. Pure private goods
• 2. Price-excludable public goods
• 3. Congestible public goods
• 4. Pure public goods
 Classification of Goods

A pure public
good
corresponds to
point B, where
there is no rivalry
for benefits and
excludability
from benefits is
impossible.
 Classification of Goods

A pure private
good
corresponds to
point A
on the graph.
 Classification of Goods

A nonrival good,
such as TV
signals, for which
exclusion is
possible,
corresponds to a
point like C.
 Classification of Goods

A congestible
public good for
which it is
possible
to charge for use,
such as a limited
access highway,
corresponds to a
point like H.
 EFFICIENT OUTPUT OF A PURE PUBLIC GOOD

• Efficiency requires that all economic activities

be undertaken up to the point that their
marginal social benefit is equated with their
marginal social cost. This principle holds for
pure public goods as well.
• The marginal social benefit of any given
amount of a pure public good is the sum of the
individual marginal benefits received by all
consumers.
 EFFICIENT OUTPUT OF A PURE PUBLIC GOOD

• The efficient quantity per time period of a pure

public good corresponds to
• the point at which output is increased so that
the sum of the marginal benefits of
• consumers equals the marginal social cost of
the good. The efficiency conditions
• for a pure public good are
MSB=MSC
 EFFICIENT OUTPUT OF A PURE PUBLIC GOOD

• The efficient quantity per time period of a pure

public good corresponds to
• the point at which output is increased so that the
sum of the marginal benefits of
• consumers equals the marginal social cost of the
good. The efficiency conditions
• for a pure public good are
MSB=MB=MSC
 EFFICIENT OUTPUT OF A PURE PUBLIC GOOD

• Efficiency condition is : MSB=MB=MSC

The Lindahl
equilibrium is also
at point E.
At that point,
voluntary
contributions of
the three people
would cover the
cost of the public
good.
 THE FREE-RIDER PROBLEM

• A free rider is a person who seeks to enjoy the benefits of

a public good without contributing anything to the cost of
financing the amount made available.
• It stems from the incentive people have to enjoy the
external benefits financed by others, with no cost to
themselves.
• Free riding works for any one individual, provided that no
penalty exists and that only a few individuals choose the
strategy.
• If all members of the community choose the free-rider
strategy, no vehicle is available to hitch a ride on because no
production of the public good would be forthcoming.
 THE FREE-RIDER PROBLEM

• Under a system of voluntary contributions when large

numbers of people are involved, attempts by
individuals to play the free-rider strategy almost
guarantee that the equilibrium amount of pure public
good will be less than the efficient amount.
• Therefore, voluntary cost sharing of pure public
goods will result in insufficient amounts of the public
good being produced relative to the efficient amounts.
 THE FREE-RIDER PROBLEM

• The free-rider problem tends to become more acute as

the size of the group benefiting from a pure public
good becomes larger-each individual member of a
small group reasons that if he or she withholds his or
her contribution, the result could be a significant
reduction in the quantity of the good that is supplied
in equilibrium.
• In large groups, the incentive for any one person to be
a free rider is greater - the probability of the free-rider
problem reducing the actual contributions to zero is
all the greater in such case.
 THE FREE-RIDER PROBLEM

• To get rid of free-rider problem, communities commonly

require compulsory payments to help finance the costs of
public goods i.e. through taxation
• Of course, not all goods supplied by governments are
pure public goods. Some services, such as schooling and
roads can be priced and sold in markets to individuals.
• However, it is common for government services that
involve some degree of collective consumption to be
financed through a compulsory tax scheme to avoid the
possibility of free riding.
 Normative Evaluation of Resource Use-The
Efficiency criterion
• Efficiency is a normative criterion for evaluating
the effects of resource use on the well-being of
individuals.
• The efficiency criterion is satisfied when
resources are used over any given period of
time in such a way as to make it impossible to
increase the well-being of any one person
without reducing the well-being of any other
person.
• Also known as Pareto Optimality Criterion.
 Normative evaluation of resource use-The
efficiency criterion
Marginal Conditions for Efficiency
• The marginal conditions for efficient
resource allocation require that resources be
allocated to the production of each good over
each period so that :
MSB=MSC
MSB=Marginal Social Benefit
MSC=Marginal Social Cost
 Marginal Conditions for Efficiency

• A t Q1, MSB >MSC.

• Here, additional net gains
from allocating more
resources to monthly
production of the good will
be possible.
• Extra net gains possible
from increasing output from
Q1 to Q* are represented by
the area ABE.
 Marginal Conditions for Efficiency

• At Q2, MSC>MSB
• Net gains would be
possible by reducing
output from Q2 to Q*.
• The net gain is given by
the area CED.
 Markets, Prices and Efficiency Conditions

• Perfectly competitive markets can result in

efficient resource use in an economy.
What is a perfect competitive market ?
• Many sellers and buyers.
• Price is given.
• Homogeneous product.
• Information available to all.
• Mobility of factors of production.
 When markets fails to achieve efficiency?

• Monopolistic power
• When taxes and subsidies are imposed in
perfect competitive market.
• Incomplete information.
Monopolistic Power
• The monopolistic firm
maximizes profits by
producing QM units
where MSB>MSC.
• P>PMC
• Additional net benefits
equal to the area ABE
are possible if output
were increased to Q*.
Taxes in Perfect Markets
• Taxes causes losses
in net benefits.
 Subsidies in Perfect Markets
• Subsidies can cause
inefficiency in
perfect Markets.
 Why and When Government Action is
Needed?
• Monopolistic Power
• Externalities
• Public Goods
• Incomplete Information
• Economic Stabilization
 Why and When Government Action is
Needed?

Monopolistic Power
• In this case, P>MC as
such demand (PMB)
does not equal MC.
• As such the efficiency
conditions are not
satisfied.
 Why and When Government Action is
Needed?
• Externalities: Effects of Market Transactions on
Third Parties Other Than Buyers and Sellers.
• In this case, MSC does not equal MPC or MSB does
not equal to MPB.
• Four cases :
• Positive externalities in consumption
• Negative externalities in consumption
• Positive externalities in production
• Negative externalities in production
 Why and When Government Action is
Needed?

• Positive externalities in
consumption
• SMB>PMB
• Result is Under
consumption
 Why and When Government Action is
Needed?
What happens in the other three cases ?
• Negative externalities in consumption
• Positive externalities in production
• Negative externalities in production
 Why and When Government Action is
Needed?
• Public Goods : Lack of a Market for a Good with a
Marginal Social Benefit That Exceeds Its Marginal
Social Cost.
 Why and When Government Action is
Needed?
• Incomplete Information : incomplete information
about the risks of purchasing certain products or
working in certain occupations

• Economic Stabilization : unemployment , high

inflation
 Equity vs. Efficiency

• Policy decisions are not made on the basis of

efficiency only.
• Equity is another important aspect : it is the
perceived fairness from a policy action.
• Two aspects of the government actions to be
analyzed : on resource allocation and the
distribution of well-being.
Trade off between Equity and Efficiency

• In perfectly competitive markets, efficiency is

ensured but is there equity?
• No, because poor people have poor resources or no
resources so market pays according to the quality of
resources owned, they cannot meet their basic needs.
• Some kind of protection is thus needed to ensure
equity.
 Supply of public goods through public
institution.
• A political equilibrium is an agreement on
the level of production of one or more public
goods, given the specified rule for making the
collective choice and the distribution of tax
shares among individuals.
• Tax shares, sometimes called tax prices, are
preannounced levies assigned to citizens.
 Determinants of Political Equilibrium

1. The public choice rules itself, that is, the

proportion of yes votes in relation to the number
of votes required for approval of the issue.
2. The average and marginal costs of the public
good.
3. The information available to voters on the cost
and benefit associated with the issue.
4. The distribution of tax shares among voters and
the way in which extra taxes vary with extra
output of the good provided.
5. The distribution of benefits among voters.
 Impact of Special Interest Groups on Political
Equilibrium
• Organizations that seek to increase government
expenditures that benefit their constituents.
• They seek to put pressure on political candidates,
bureaucrats, and ultimately on voters to support
issues that benefit the members of their groups.
• Such groups exist to promote policies favorable to
workers, particular industries, régions, racial
minorités, ethnic groups, environnemental
préservation, and taxpayers.
 Impact of Special Interest Groups on Political
Equilibrium

• Pressure groups that succeed in obtaining

increased benefits from government must
make the members of competing pressure
groups worse off.
• This is because an increase in
government spending for one group
increases taxes, or imposes other costs,
on other groups.
 Impact of Special Interest Groups on Political
Equilibrium

• Successful special-interest groups are likely to

be small relative to the portion of the
population that pays taxes to support their
subsidies.
• The greater the number of citizens who pay
taxes to support even a rather large subsidy to
a group with only a few members, the lower is
the tax per citizen relative to the subsidy per
beneficiary.
 /fh:j kl/rfng
/fh:j ;+sngsf] ;+/rgfTds k|j[lQ
• /fh:j cGtu{t s/ /fh:j tyf u}/ s/ /fh:j
kb{5g .
• g]kfndf s'n /fh:jdf s/ /fh:jsf] lx:;f sl/a ** k|ltzt
tyf u}/s/ /fh:jsf] lx:;f sl/a !@ k|ltzt /x]sf] 5 .
• s/ /fh:jsf] lx:;f a9\b} uPsf] 5 .
• cfly{s jif{ @)^#/^$ df s'n /fh:jdf s/ /fh:jsf] lx:;f *!
k|ltzt /x]sf]df @)&%/&^ df ** k|ltzt k'u]sf] .
 /fh:j ;+sngsf] ;+/rgfTds k|j[lQ

• s/ /fh:j j[l4b/ t'ngfTds ?kdf pRr

/x]sf] .
• ljut !( jif{df s/ /fh:jsf] j[l4b/ !*
k|ltzt, u}/s/ /fh:jsf] j[l4b/ !$ k|ltzt
tyf s'n /fh:j j[l4b/ !& k|ltzt /x]sf] .
 /fh:j ;+sngsf] ;+/rgfTds k|j[lQ

• ljut !( jif{df s'n /fh:j !& u'0ff ePsf] .

• cf=j= @)))/)! Dff ?=$( ca{ /fh:j ;+sng
ePsf]df cf=j= @)!*/!( df ?= *^) ca{
/fh:j ;+sng ePsf] .
• s'n /fh:jsf] ufx{:Yo pTkfbg;+usf] cg'kft
j[l4 x'b} uP/ cf=j= @)!*/!( df @$=* k|ltzt
k'u]sf].
 /fh:j ;+sngsf] ;+/rgfTds k|j[lQ

• s/ /fh:jdf d"No clej[l4 s/sf] ;a}eGbf a9L

of]ubfg /x]sf] .
• bf];|fd
] f cfo s/ tyf t];|fd ] f eG;f/ dx;'n
/x]sf] .
• s'n /fh:jdf d"No clej[l4 s/, cfos/ tyf
cGt z'Nssf] lx:;f a9\b} uPsf] tyf eG;f/
dx;'nsf] lx:;f 36\b} uPsf] .
 vr{df /fh:jsf] of]ubfg

• ;/sf/L vr{df /fh:jsf] of]ubfgdf j[l4 x'b} uPsf] .

• ljut kfFr jif{df s'n ;/sf/L vr{df /fh:jsf] of]ubfg
sl/a &% k|ltzt /x]sf] .
• afFsL vr{sf nflu j}b]lzs cg'bfg tyf ;fj{hlgs
C0fdf e/ kg]{ u/]sf] .
 d"No clej[l4 s/

• d"No clej[l4 s/ /fh:jnfO{ vf;u/L cfGtl/s / afXo u/]/

b'O{ efudf af+8\g] ul/G5 .
• cfoftdf eG;f/ sfof{non] ;+sng u/]sf] d"No clej[l4
s/nfO{ jfXo elgG5 eg] b]zleq cfGtl/s /fh:j
sfof{non] ;+sng u/]sf] d"No clej[l4 s/nfO{ cfGtl/s
elgG5 .
• s'n d"No clej[l4 s/sf] Ps ltxfO cfGtl/s / b'O{ ltxfO{
afXo /xg]] u/]sf] 5
 d"No clej[l4 s/

• d"No clej[l4 s/ g]kfnsf] /fh:jsf] ;aeGbf 7"nf] >f]t xf] .

• o;af6 s'n s/ /fh:jsf] Ps ltxfO / s'n /fh:jsf] @*
k|ltzt eGbf a9L lx:;f k|fKt x'G5 .
• d"No clej[l4 s/ /fh:j / s'n ufx{:y pTkfbgsf] cg'kft %
k|ltzteGbf a9L /x]sf] 5 .
• cfufdL lbgdf o;nfO{ /fh:jsf] d]?b08sf] ?kdf ljsl;t
• ul/g' kb{5 / o;sf] of]ubfg s'n /fh:jdf #% k|ltzt b]lv
$) k|ltzt;Dd k'¥ofpg] nIo /flvg' kb{5 .
 cfo s/

• cfo s/ /fh:jnfO{ vf;u/L JolQmut tyf ;+:yfut cfo

s/df ljefhg ul/G5 .
• k|fs[lts JolQm tyf Psnf}6L kmd{jf6 ;+sng ePsf]
/fh:jnfO{ JolQmut cfo s/df ;dfj]; ul/G5 .
• cGo If]qaf6 k|fKt /fh:jnfO{ ;+:yfut cfo s/df ;dfj]z
• ul/G5 .
• JolQmut cfo s/ eGbf ;+:yfut cfo s/ /fh:j bf]Jj/eGbf
a9L 5 .
 cfo s/

• xfn}sf jif{x¿df cfo s/af6 s'n s/ /fh:jsf] s/Lj Ps

rf}yfO{ / s'n /fh:jsf] @) k|ltzteGbf a9L lx:;f k|fKt x'G5
eg] cfo s/ s'n ufx{:y pTkfbg cg'kft s/Lj $ k|ltzt
/x]sf] 5 .
• o; s/nfO{ bL3{sflng lx;fjn] klg d"No clej[l4 s/ kl5sf]
/fh:jsf] bf];|f] dxTjk"0f{ ;|f]tsf] ?kdf ljsl;t ul/g' kb{5 .
 eG;f/ dx;'n

• eG;f/ dx;'nnfO{ lgsf;L tyf k}7f/L dx;'ndf ljefhg ug]{

ul/Psf] ePtf klg lgsf;L dx;'naf6 vf;} /fh:j k|fKt x'b}g
• k}7f/L dx;'naf6 k|fKt x'g] /fh:j klg bL3{sflng lx;fjn] bLuf]
x'g] b]lvb}g .
• k/Dk/fut ?kdf eG;f/ dx;'n /fh:jsf] d"n ;|f]tsf] ?kdf /x]sf]
ePtf klg xfn}sf jif{x¿df o;sf] ;fk]lIfs dxTj sd x'+b} cfPsf]
5.
• xfn o; s/af6 s'n /fh:jsf] @) k|ltzt hlt lx:;f k|fKt x'g]
ub{5 eg] eG;f/ /fh:j tyf s'n ufx{:y pTkfbgsf] cg'kft s/Lj
#=% k|ltzt hlt 5 .
 cGt z'Ns

• cGtMz'NsnfO{ k}7f/L tyf cfGtl/s u/]/ b'O{ efudf ljefhg

ul/G5 .
• k}7f/L ul/g] cGtMz'Ns nfUg] j:t'sf] k}7f/Ldf eG;f/ sfof{non]
;+sng ug]{ cGtMz'NsnfO{ k}7f/L cGtMz'Ns elgG5 eg]
cfGtl/s pTkfbgdf cfGtl/s /fh:j sfof{non] p7fpg]
cGtMz'NsnfO{ cfGtl/s cGtMz'Ns eGg] ul/G5 .
• k}7f/L cGtMz'Ns eGbf cfGtl/s cGtMz'Nssf] of]ubfg a9L 5 .
 cGt z'Ns

• cfGtl/s cGtMz'NsnfO{ ;"lt{hGo kbfy{, dlb/f, ljo/ / cGo

cf}Bf]lus pTkfbg u/]/ rf/ ju{df ljefhg ug]{ k|rng 5 .
• ljutdf ;aeGbf a9L cGtMz'Ns ;"lt{hGo kbfy{af6 k|fKt
x'GYof] eg] xfn dlb/f cGtMz'Ns /fh:jsf] ;aeGbf 7"nf] ;|f]t
ePsf] 5 .
• /fh:jsf] lx;fjn] dlb/f kl5 ;"lt{hGo kbfy{sf] :yfg 5 .
 ;fdflhs ;'/Iff tyf cGo s/

• ;fdflhs ;'/Iff s/ kfl/>lds cfosf] ! k|ltztsf b/n]

;+sng ul/G5 .
• cGo s/x¿df /lhi6«]zg b:t'/, lzIff ;]jf z'Ns, :jf:Yo s/,
jg k}bfjf/ z'Ns cflb kb{5g\ .
 u}/ s/ /fh:j

• u}/ s/sf ;|f]tx¿df ;/sf/L ;DklQaf6 k|fKt cfo, j:t' tyf

;]jfsf] ljqmL, ljleGg k|sf/sf b:t'/x¿ / b08 hl/jfgf tyf
hkmt cflb kb{5g\ .
• u}/ s/ /fh:jx¿df ;/sf/L ;DklQaf6 k|fKt cfo ;a}eGbf
7"nf] ;|f]tsf] ?kdf /x]sf] 5 eg] To;kl5sf] csf]{ dxTjk"0f{
;|f]t j:t' tyf ;]jfsf] ljqmLaf6 k|fKt cfo /x]sf] 5 .
• g]kfnsf] s'n /fh:jdf u}/ s/ /fh:jsf] of]ubfg xfn s/Lj
!@ k|ltzt dfq ePklg ljutdf of] @) k|ltztsf] xf/fxf/Ldf
lyof] .
 /fh:jsf] k|If]k0f

• eljZodf ;+sng x'g ;Sg] /fh:jsf] cg'dfg .

• cfwf/x? M cfly{s ultljlwx?sf] lj:tf/, cfoft,
lgof{t, d'b|f:kmLlt cflb .
• s/ gLlt, s/ k|zf;gaf6 x'g] ;'wf/af6 ;d]t k|efljt
x'g] .
 /fh:jsf] k|If]k0fsf tl/sfx?

• u'0ffTds M ;+VofTds ;"rgfsf] cefj ePsf] a]nf

a9L pkof]uL x'g] .
• o;df ljj]s tyf lj1sf] /fosf] pkof]u ul/G5 .
• ;+VofTdsM ;+VofTds ;"rgfsf] kof{Kttf ePsf]
a]nf a9L pkof]uL x'g] .
 /fh:jsf] k|If]k0f

• ;+VofTdsM ;+VofTds ljlw cGtu{t lgDg ljlwx?sf]

pkof]u ul/G5 .
• Time Series Method
• Input Output Model Based Method
• Simulation Based Method
 /fh:jsf] k|If]k0f

• Time Series Method : Three techniques are mostly

used.
• Trend Method
• Buoyancy/Elasticity Method
• Moving Average Method
 /fh:jsf] k|If]k0f

• Trend Method : Tax is projected by using the

following trend equation:
Yt=a+bTt+et

Where, Yt= Tax revenue , Tt= Time

 /fh:jsf] k|If]k0f

• Buoyancy/Elasticity Method: Tax is projected by

using the following trend equation:
ln Yt=a+b ln GDPt+et

Where, Yt= Tax revenue , GDPt= Gross Domestic

Product
 /fh:jsf] k|If]k0f

• Moving Average Method: Tax is projected by using

the moving average growth of taxes over time.
 s/sf l;bfGtx?

• ;/ntfsf] l;bfGt M s/ k|0ffnL ;lhn} a'lemg] x'g'kb{5 .

• sd vlr{nf] M ;+sng ug{ sd vr{ nfUg] .
• lglZrttf M s/ slt tyf slxn] ltg]{ lglZrt ePsf] .
• ;dfgtf M s/sf] ef/ ;dfg tl/sfn] ljt/0f x'g'kg]{ .
• nrstf M s/sf] b/ tyf bfo/f kl/jt{t ug{ ;lsg] .
• ;xhtf M s/ ltg{ ;xh x'g] vfnsf] Joj:yf
 s/sf l;bfGtx?

s/ s] sf cfwf/df nufpg] <

• Nffe l;bfGt M ;/sf/L j:t' tyf ;]jfaf6 k|fKt ug]{
nfesf cfwf/df s/ lgwf{/0f ug]{ .
sdhf]/Lx?
• nfesf] ;xL dfkg ug{df s7LgfO{ x'G5 .
• of] l;bfGt cg';f/sf] s/f/f]k0f slxn]sfFxL k|ltufdL x'g
;Sg] ;Defjgf /xG5 .
 s/sf l;bfGtx?

s/ s] sf cfwf/df nufpg] <

• ltg]{ Ifdtf l;bfGt M s/ ltg]{ Ifdtfsf cfwf/df s/
nufpg' kb{5 .
Ifdtf dfkg ug]{ cfwf/x?M
• cfo
• ;DklQ
• pkef]u
 s/sf l;bfGtx?

s/ s] sf cfwf/df nufpg] <

ltg]{ Ifdtf l;bfGt M
• of] k|0ffnL k|ultzLn s/ k|0ffnLdf cfwfl/t 5 .
• ;dfgtfsf] l;bfGt k'/f x'G5 .
• t/ Ifdtf dfkgdf s]xL ;d:of l;h{gf x'G5 .
 s/sf k|sf/x? -b/sf cfwf/df_
• k|ultzLn, ;dfg'kflts, cBf]ufdL, k|ltufdL
 cfos/

• cfo s/ dWo] JolQmut cfo s/ k|ultzLn b/n]

nufOG5 eg] ;+:yfut cfo s/ ;db/n] .
• JolQmut cfo s/ ;dfhdf cfosf] c;dfg ljt/0fnfO{
Go"g ug]{ p2]Zon] k|ultlzn b/n] nufOG5 .
• ;+:yfut Psn b/n] k|ultlzn s/sf] b/n] h:tf]
;Ifdtfk"j{s k|efjsf/L ?kdf ;+rfng ePsf / a9L
gfkmf cfh{g ug{ ;kmn sDkgLx¿nfO{ lg?T;flxt kfb}{g
 cfos/

• cfo s/ dWo] JolQmut cfo s/ k|ultzLn b/n]

nufOG5 eg] ;+:yfut cfo s/ ;db/n] .
• JolQmut cfo s/ ;dfhdf cfosf] c;dfg ljt/0fnfO{
Go"g ug]{ p2]Zon] k|ultlzn b/n] nufOG5 .
• ;+:yfut Psn b/n] k|ultlzn s/sf] b/n] h:tf]
;Ifdtfk"j{s k|efjsf/L ?kdf ;+rfng ePsf / a9L
gfkmf cfh{g ug{ ;kmn sDkgLx¿nfO{ lg?T;flxt kfb}{g
 g]kfnsf] cfos/ ;+/rgf

• JolQmut tyf ;+:yfut cfo s/

• ;+:yfut cfo s/sf] of]ubfg a9L /x]sf -@)&$÷&% df
cfos/df sl/a %$ k|ltzt _
•
 g]kfnsf] cfos/ ;+/rgf

• JolQmut cfo s/sf b/x? M

 g]kfnsf] cfos/ ;+/rgf

• JolQmut cfosf] Nominal tyf Effective b/ M

• ah]6 jf cfly{s P]gdf tf]lsPsf] b/ Nominal s/ b/ xf] .
• Nominal b/ nfO{ Marginal Tax Rate tyf Effective
b/nfO{ Average Tax Rate klg elgG5 .
• Jf:tljs s/sf] b/ lt/]sf] s/ nfO{ s/of]Uo cfon] efu u/]/
lgsflnG5 .
Effective Rate = Tax Paid/Taxable Income
• o:tf] b/ k|To]s cfo:t/ ePsf JolQmsf nflu km/s x'G5 .
 g]kfnsf] cfos/ ;+/rgf
• Effective b/ u0fgf M ?= #) nfv jflif{s cfo ePsf]
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Lower Tax
Bracket Tax rate Upper Limit Taxable income
Limit Expense
1 1% 0 400,000 400,000 4000
2 10% 400,000 500,000 100,000 10000
3 20% 500,000 700,000 200,000 40000
4 30% 700,000 2,000,000 1,300,000 390000
5 36% 2,000,000 3,000,000 1,000,000 360000
Total 3,000,000 804,000

Effective Tax Rate = Total Tax Expenses / Taxable Income

Effective Tax
26.80%
Rate
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