Friday, July 20, 2012

Nick Saban Advocates Taxing Penn State Athletic Events

University of Alabama head football coach Nick Saban has suggested a tax on Penn State athletics events and to use the proceeds to fund child abuse organizations. Now what I want to focus on at this time is only about the type of tax and the impact of a tax. As I mention in Prin. of Microeconomics, there are three basic types of taxes: value-added taxes - such as a sales tax - which is a fixed percentage of the total value of consumption; a per-unit tax - which is a fixed amount per unit sold; and a lump sum tax - which is just a fixed number that is transferred to the government. As I mention in my Prin. of Microeconomics course, both value-added and per unit taxes are inefficient since they result in a reduction in economic surplus (also known as a deadweight loss). Both types of taxes raise prices and lower outputs under the assumption that demand and supply are not perfectly price inelastic - which I am assuming here. Thus as an economist, I would not advocate this type of tax if that is the solution sought in this case. Rather, if the penalty is to tax athletic events (and I am not saying that is what I would do), then in terms of economic efficiency the best type of tax would be a lump sum tax. The tax would be a transfer from the athletic department to some other organization(s) and would not artificially increase prices or reduce economic surplus.
Here is a video with Alabama head football coach Nick Saban.

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