Answer: C Difficulty: 1 Topic: Effects of a Sales Tax Question Status: Revised True/False/Explain 1) In the case of a linear demand curve, demand becomes more price elastic as price increases. Tax incidence. (d) All of the above.

Keywords: tax incidence, market institutions, experiment JEL codes: C9, D4, H2. Inheritance tax legislation defines a specific gift negatively as meaning “any gift other than a gift of residue or of a share in residue”. By the impact of the tax we mean the initial burden of a tax and by the incidence of a tax we mean the ultimate burden of a tax. The tax incidence depends upon the relative elasticity of demand and supply. A direct tax is one whose impact and incidence fall upon the same person.

From this analysis one can also predict whether a tax is likely to create a large revenue or not. (b) the amount of the tax.
A specific gift, where the term refers to a disposition by Will, is generally understood to be a bequest of a defined asset, such as a gold watch. Introduction . To understand the distributional effects of a tax, it is necessary to know who ultimately bears its burden. The consumer burden of a tax increase reflects the amount by which the market price rises. (c) the price elasticities of supply and demand. 3 .


The theory of tax incidence is concerned with answering this very question, and there may not be a more important one in the field of public finance. Sellers receive a lower price than before the tax, but this difference is much smaller than the change in consumers’ price. The relative burden, or incidence, of an indirect tax is determined by the price elasticity of demand (PED) of the consumer in response to a price rise. A tax on income is a … The more elastic the demand curve, the … However, if the consumer is responsive to the price rise, and PED is elastic, the burden will fall mainly on the firm. Every tax has a burden. 56) The tax incidence of a specific tax or ad valorem tax is influenced by (a) who pays the tax. Tax incidence refers to how the burden of a tax is distributed between firms and consumers (or between employer and employee). Taxation is by and large the most important source in nearly all countries. Many thanks to them for their generosity. Hilary Hoynes Incidence UC Davis, Winter 2013 1 / 61 The Incidence of A Specific Tax an Application If government imposes a tax in a from ECON 3211 at Columbia University If the consumer is unresponsive, and PED is inelastic, the burden will fall mainly on the consumer. Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. The following illustrates types of taxes that the Union Government of India imposes: One can also define these two taxes on the basis of impact and incidence of a tax.

Study the three rules of tax incidence 1.Statutory burden of tax 6= economic incidence of tax 2.Side of the market on which tax is imposed is irrelevant to distribution of tax burdens 3.Parties with inelastic supply or demand bear taxes. The tax incidence now falls disproportionately on consumers, as shown by the large difference between the price they pay, Pc, and the initial equilibrium price, Pe. Econ 230A: Public Economics Lecture: Tax Incidence 1 Hilary Hoynes UC Davis, Winter 2013 1These lecture notes are partially based on lectures developed by Raj Chetty and Day Manoli. A pecuniary legacy of a defined amount is also a specific gift.


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