Beruflich Dokumente
Kultur Dokumente
4135:
Taxation
Incidence of Taxes
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Issues to be discussed:
Impact, Incidence and Effect of a Tax Shifting of Tax Incidence Theories of Tax Shifting Factors Influencing Tax Shifting General Effects of Taxation
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Direct money burden amount of tax being paid by the taxpayers to the tax authorities Indirect money burden additional money expenses incurred by the taxpayers for tax payment Real Burden: loss of welfare to the taxpayers and the community as a whole, in terms of increasing unemployment, reduced production, etc. Direct real burden sacrifice of the welfare which the tax itself
imposes upon the taxpayers, but not as net of the benefits, if any Indirect money burden indirect loss of welfare which results from (a) interference with consumer choice, (b) changes in factor supply and hence total output, and (c) changes in employment through changes in aggregate demand
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D D1 E C S1 S D1 O M M P B A P
S1 S
ed =elasticity of demand es =elasticity of supply ed =(MM /OM)/(P B/PM) es =(MM /OM)/(BA/PM) es /ed = P B/BA
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Thus, if ed = [Demand Curve parallel to X-axis], es = 0 [SC parallel to Yaxis], the entire incidence of the tax is on the seller. if es = [Supply Curve parallel to X-axis], ed = 0 [DC parallel to Y-axis], the entire incidence of the tax is on the buyer. if ed = es, the incidence of the tax is equally divided between the seller and the buyer. if es > ed, the incidence of the tax is in higher proportion upon the buyer than upon the seller. if ed > es, the incidence of the tax is in higher proportion upon the seller than upon the buyer.
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1.
Taxation policy should be as follows to optimum allocation of resources at the equilibrium point where the social indifference curve is tangent with the production possibility curve.
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Income Higher direct taxes reduce disposableUsually the imposition of income by curtailing the incomean indirect tax increases directly. In the countries wherethe price of the concerned unemployment allowances aregoods or services. Thus provided, the situation becomes worsethe purchaser has to pay when an unemployed getsmore, which reduces the employment but falls in the lowernet income. income-bracket, because then he will not receive the unemployment benefit and at the same time he has to pay tax. This is called unemployment trap.
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Higher direct taxes have a negativeHigher indirect tax has also a effect on initiative, because then thenegative effect on the business leisure will be more preferable tocommunitys initiative, because work. But it is sometimes said, due toit is seen as an impediment to higher direct tax some will do moretheir trade and commerce works in order to maintain thecausing a price barrier. standard of living.
Overall Other things remaining the same, as a result of higher taxation, Economy aggregate demand of the economy will fall, which may cause an
inflationary effect on the price and output levels. Balance of payments may be improved by decreasing the dependency on foreign aid. But the employment situation may be worsen due to the fall in aggregate demand. Besides, taxation may affect regional disparity, inequality between income and wealth, etc.
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Thank you.