Consumption taxes

Question 1

What is a specific excise tax?

Answer 1

Fixed amount on a specific commodity, imposed on the supplier

Question 2

What is an ad valorem tax?

Answer 2

Fixed % of the sales price

Question 3

What is a statutory incidence?

Answer 3

The burden of a tax borne by the party that send the check to the government

Question 4

What is the economic incidence?

Answer 4

The burden of taxation measured by the change in the resources available to any economic agent as a result of taxation

Question 5

How do you compute the producer tax burden?

Answer 5

(pretax P - post tax P) + per unit tax payments by producer

Question 6

How do you compute the consumer tax burden?

Answer 6

(post tax P - pretax P) + per unit tax payments by consumer

Question 7

What are the rules of tax incidence?

Answer 7

• The statutory burden doesn’t really describes who really bears the tax
• The side of the market on which the tax is imposed is irrelevant to the distribution of the tax burden
• Parties with inelasticity bear taxes, while elastic ones avoid them

Question 8

What are the economic cycles of a good?

Answer 8

• Production
• Wholesale
• Retail

Question 9

What is the final VAT tax?

Answer 9

T* (a+b+c) –> added values on the economic phases

Question 10

What are the two types of VAT rates that EU state members usually have?

Answer 10

• Reduced rates for necessity and merit goods

- Higher taxes for other goods

Question 11

What is the contradiction on taxation of necessity goods?

Answer 11

-They have an inelastic demand, so with tax the demand theoretically wouldn’t change BUT necessity goods are usually consumed by poorer people. There is a dilemma between the Ramsey rule and efficiency tradeoff