Elasticity

Indirect Taxes

• Taxes are a tool used by Governments to raise finance and influence their citizens’ economic choices.
• Taxation should enable the government to redistribute income from the rich to the poor. It is the primary means for Government to raise finance for it’s programs and to pay off it’s debts. 

• An indirect tax is is tax imposed on producers (suppliers) by the Government.

• Examples include duty on fuel, alcohol, the sugar levy, carbon tax, import duty and VAT. Indirect taxes are a form of Government intervention in markets in order to address market failure. Excise taxes are typically a fixed fee per unit, meaning that the Government earns it’s revenue based on volume sold. Ad valorem taxes are proportional to the price of the good so the Government earns revenue based on the value of the good/service sold.
• Producers may be able and choose to pass on some or all of the tax burden on to the consumer by raising prices.
• Tax incidence is the analysis of the effect of a particular tax has on two parties in the transaction: the producer and the consumer.
• A marginal tax is an increase in tax on a good that shifts the supply curve to the left, increases the consumer price and decreases the price for sellers.