Tax Pay

Tax Pay

Introduction:

From the case study on Santa Monica Mountains it is clear that people want to pay taxes for the preservation of public land for the purpose of introducing recreational parks for the future generation. Turning the area to be private property will result into negative externalities that will result from the free market taking over. Public goods can be defined as those good provided by the government for free and they are financed through taxes by residents.

This paper analysis the best option by voters toward the decision to be made regarding the public property, it also considers the cost benefit theory to analyse the situation of Santa Monica

Mountains . The other theory considered in this case is the ability to pay theory which analysis the extent to which the tax payers will optimally be taxed.

Santa Monica Mountains;

From the case study the area wants to be sold to private owners for developments. However the area could be set aside for recreation purposes at a cost of 40 dollars per year for the households, 120 dollars per year for the businesses for 30 years. Santa Monica Mountain is a public good because for one it is owned by the government, secondly there is motion to

Tax Pay

privatise the area by selling it to private developers. The area is a public good and its development will need to be financed through taxes. A public good is that which is provided by the state and it is state owned and it is financed through taxes.

The free market is considered by many to be an effective way in which the allocation of goods is effective. However the issue of market failure is evident where the market fails to cater for externalities. The market will determine the proper allocation of resources because the equilibrium price and quantity is determined by the supply and demand for a good. Public goods such as the Santa Monica Mountain will be financed through taxes and the cost of this good is not determined by the supply and demand of the area. The free market therefore will be considered a better way in which resources are allocated.

According to the results of the voters majority want to retain the land as public property whose development would be financed through taxes, those who voted for the tax amounted to 68 percent. The rest voted for the privatisation of the land, Those who voted amounted to 77 percent and if the voters were 100 percent the same results would have occurred because the margin differences is too large to make any significance.

The reason why some did not vote can be attributed to lack of information regarding the voting exercise. The people who failed may also have lacked interest in the voting exercise while others were not available at the time to cast the vote.

The maximum social advantage theory depict that the optimal level of public expenditure is the point where the marginal cost curve is equal to the marginal benefit curve, in our case the tax payers are willing to pay for the expenses on the Santa park and therefore the marginal benefit is higher than the marginal cost and therefore there it is still optimal to increase public expenditure on the park.

From the analysis of cost and benefits of public goods it is clear that there is a need to analyse the benefits and the costs of the Santa Monica mountain park, the best public expenditure or tax level is that where the marginal cost and marginal benefits are equal and this is the point where net difference between the marginal cost and marginal benefit is equal to zero. Therefore according to this model the Santa Monica mountain park should be preserved as a public good but the level of expenditure should follow the cost benefit analysis making sure that the level of expenditure is at the optimal level as demonstrated in the diagram above.

If the residents are willing to pay for the taxes then the area should be set as a public good, the ability to pay theory also demonstrates that the relative tax should be based on the relative ability to pay by the tax payers. The taxes imposed on tax payers in the Santa park case is relatively low to residents in that the amount to residents is 40 dollars per year and this is relatively low. Therefore this land should be set as a public good to preserve the remaining free area for recreation purposes.

In the case where the land is privatised it is clear that the market will not be in position to cater

Tax Pay

for the externalities that will result from the development of the area, these externalities include pollution, decline in natural resources and the failure to take into consideration environmental degradation. The development of the park will therefore give an opportunity for preserving the environment and also provide the local residents with recreation grounds.

Therefore it is clear that residents want to pay taxes for the maintenance of the park as a public good and therefore this land should not be privatised, this is because the tax payer is willing to pay and in the same context it is clear that the market fails to cater for externalities which will result from the privatisation of this land.

Conclusion:

The Santa park has been set for sale depending on the voters decisions, the vote results show that the residents would prefer to pay tax and maintain the area as a public good where they will develop parks, if the tax payers vote shows their willing ness to pay and therefore this shows that they highly benefit from the area as a public good.

The maximum social benefit and cost theory shows the result of an optimal public expenditure, it analysis the cost and benefits o0f a public good and shows the optimal level of public expenditure, it is relevant to this case in that the most optimal point should be the point where the marginal cost curve is equal to the marginal benefit curve.

The area should be set as a public area therefore should be set as a public area according to the votes as by tax payers, 68% of the tax payers agree to pay for taxes imposed on maintaining the land as a public good. However the vote did not include all the residents and tax payers but the sample of these residents is a representative of the whole population of the tax payer. Public goods are important to the residents in that they provide benefits to the residents who are even willing to pay for the taxes set.

References:

The Santa park(2007) voting against privatisation of Santa Monica mountains, retrieved on 29th

October, available at

http://instructional1.calstatela.edu/mfinney/Courses/433/assign/messay.html

Tax Pay

http://instructional1.calstatela.edu/mfinney/Courses/433/articles/park.html