Indirect tax - Full market impact Flashcards
What are some reasons for indirect taxation ?
Increase government revenue
Solve market failures
What is an indirect tax ?
A spending tax which increases the cost of production for firms but can be pushed on to consumers
What is a direct tax ?
Tax on income which cant be transferred
Income + corporation tax
What is a specific indirect tax ?
A tax per unit e.g a £1 per bottle
What is a valorem indirect tax
Tax as a % of the price ( VAT )
What are the impacts of indirect taxes on a market ?
Supply shifts to the left
Price increases and quantity falls
How do you find consumer burden in the indirect tax diagram ?
P1 P2 B D area
How do you find producer burden in the indirect tax diagram ?
P1 D C E
How do you find producer revenue ?
E C Q2 0
How do you find deadweight welfare loss ?
ABC
What is the impact on consumers of indirect taxes ?
:( , increased prices reduces consumer surplus , quantity and choice
It takes a higher % of poorer peoples incomes and wages
What is the impact on producers / workers of indirect taxes ?
:( - lower revenues , lower producer surplus , workers could lose jobs too as demand falls
What is the impact on the government of the indirect taxes ?
:) If GOVT revenue increases or they solve the market failure
:( as consumers are harmed as it is regressive which can cause firms to leave the country , lower investment and higher unemployment
