Celikay, F. (2020), «Dimensions of tax burden: a review on OECD countries», Journal of Economics, Finance and Administrative Science, Vol. 25, No. 49, pp. 27-43. doi.org/10.1108/JEFAS-12-2018-0138 In business, tax incidence is a term used to describe how taxes are allocated between buyers and sellers. The burden of taxes may be more likely to fall on individuals or organizations, depending on the unique circumstances surrounding the product. The difference between the initial tax incidence and the final charge is called the tax transfer. Measures that increase the price elasticity of supply with respect to demand can increase the burden of taxes on consumers.
Nikola, S. (2015), «The hierarchical clustering of the tax burden in the EU27», Journal of Competitiveness, Vol. 7, No. 3, pp. 95-109. Tiwari, A.K. and Mutascu, M.A. (2013), «Revisit on the tax burden distribution and GDP growth: fresh evidence using a consistent nonparametric test for causality for the USA,» Empirical Economics, Vol.
46, No. 3, pp. 961-972. Another example is that the demand for cigarettes is mostly inelastic. When governments impose a tax on cigarettes, manufacturers increase the selling price by the full amount of the tax and pass the tax burden on to consumers. The analysis determines that demand for cigarettes is not influenced by price. Of course, there are limits to this theory. If a pack of cigarettes suddenly went from $5 to $1,000, consumer demand would drop. The point of the initial supply curve in terms of the quantity of goods after taxation represents the price (from which the part of the tax is deducted ( p 0 − ( 1 − k ) t ) , k ∈ [ 0 , 1 ] ) {displaystyle (p_{0}-(1-k)t),kin [0,1])} that producers receive for a given quantity. In this case, the tax burden shall be borne equally by producers and consumers. For example, if the original price of the good is $2 and the production tax is $0.40, consumers can buy the good for $2.20, while producers receive $1.80. Liu, L.
and Altshuler, R. (2013), «Measuring the Burden of Corporate Income Tax Under Imperfect Competition,» National Tax Journal, Volume 66, No. 1. Most people need to earn income to live, so most taxpayers bear most of the income tax burden, although retail vendors and others who sell directly to consumers will bear some of the burden of reducing sales as personal disposable income is reduced by income tax. A market with perfect competition is very rare. A larger part of the market is called imperfect competition, such as monopoly, oligopoly or monopolistic competition. Producers choose the level of production at which marginal costs correspond to marginal incomes. The demand curve predicts the price level. After tax, the marginal cost curve shifts to the left to reach a new equilibrium, characterized by a lower quantity and price than before (this is given by the downward slope of the demand curve and the marginal yield curve). The elasticity of the curves remains the main predictor of the level of the tax burden on consumers and producers. In general, the steeper the marginal cost curve, the smaller the observed change in after-tax output.
The difference between perfect and imperfect competition can be observed when the marginal cost curve is horizontal (perfect elasticity). Unlike perfect competition, where the tax burden lies with the consumer, in cases of imperfect competition, suppliers and consumers share the burden. The size depends on the elasticity of the demand curve. For example, if the demand curve is linear, the ratio is half-equilibrium and half-equilibrium). Another difference is the ad valorem tax and the specific tax. For a given income, the production of the ad valorem tax exceeds the production of the specific tax. [5] Roosma, F., Oorschot, W. and Gelissen, J. (2015), «A fair distribution of burdens? Attitudes towards the social distribution of taxes in 26 welfare states,» International Journal of Public Opinion Research, vol. 28, no. 3, pp.
376-400. Although the average tax burden has fluctuated for years, it is interesting to observe a continued upward trend, especially after the 2008 global crisis. The main reason for this trend is that governments prefer «new fiscal interventionism» to overcome financial instability. In business, the burden of tax refers to the excessive tax burden imposed on citizens by the government. These include direct taxes and all types of indirect taxes levied by different authorities. The budgetary impact and the differential impact are logically at the same level. The only difference between these two techniques is the question they pose. Specific incidence, on the other hand, is a precursor to the study of household impact and the results obtained should be treated with caution. When studying the impact of differences, government spending is kept constant and one tax is increased or decreased at the expense of another. Differential impact is particularly useful when studying the effects of tax reforms. The question is, for example, what effect can be expected from a reduction in income tax while increasing sales tax in a turnover-neutral manner.
Like household incidence, differential incidence can be studied in a closed model where the government`s fiscal constraint is always respected. [9] Tax incidence (or tax incidence) is an economic term used to understand the sharing of a tax burden between stakeholders such as buyers and sellers or producers and consumers. The tax incidence may also be related to the price elasticity of supply and demand. If supply is more elastic than demand, the tax burden falls on buyers. If demand is more elastic than supply, producers bear the cost of the tax. The elasticity of demand is often taken into account when governments consider levying sales or excise taxes on goods or services. Since sales taxes are levied on many items, buyers typically bear most of the VAT burden because there are few other things they can buy that are tax-free. On the other hand, excise taxes, which are sales taxes on certain products, would hurt sellers more in many circumstances, as buyers can purchase untaxed goods.
This elastic demand shifts the tax burden onto sellers. However, there are some items where demand is inelastic because there are no close substitutes such as alcohol and tobacco, so the tax burden on these items is more likely to fall on buyers.