Th1.4: Disadvantages of Indirect Taxation Flashcards
How many disadvantages are there?
six
It is difficult to know the size of the externality?
it is difficult to target the tax - the effects depends on where the tax is set. the government suffers from imperfect information when setting the tax
There could be conflict which…
between the government goal of raising revenue and solving the externality, which makes setting the tax difficult
It could lead to the creation of…
the black market
How could tax be ineffective at reducing output?
if demand for the good is inelastic
Why may governments be reluctant to introduce taxes?
they are politically unpopular
They are regressive, meaning?
the poor spend a larger proportion of their income on indirect taxes than the rich do
What are some examples of indirect taxes used for externalities in the UK?
landfill taxes
fuel / alcohol / tobacco / air passenger duties
sugar taxes
