Indirect tax Flashcards
1
Q
What is indirect tax?
A
It is a tax imposed on producers by the government, it is a form of government intervention in markets often with the aim of addressing market failure. Examples: duties on cigarettes, alcohol
2
Q
What is tax incidence?
A
How the final burden of a tax is shared between consumers and producers
3
Q
What are advantages of indirect taxes?
A
Corrects market failures eg: negative externalities and information failures that lead to over provision
Deters consumption of goods that are bad for us eg: tobacco
Source of revenue for government
Helps tackle climate change
4
Q
What are disadvantages of indirect taxes?
A
Regressive
Hard to determine best size of tax
Compliance costs
Possible tax avoidance/evasion
Shadow market activity
Government failure
