Which of the following statements about the burden of a tax is correct ?
Correct answer: C. The distribution of the burden of a tax is determined by the relative elasticities of determined by legislation.
- A. The tax burden generated from a tax placed on a good consumer perceive to be a necessity will fall most heavily on the sellers of the good
- B. The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected
- C. The distribution of the burden of a tax is determined by the relative elasticities of determined by legislation.
- D. The tax burden falls most heavily on the side of the market (buyers and sellers) that is most willing to leave the market when price movements are unfavorable to them.
Explanation
Tax incidence depends on the relative elasticities of demand and supply, not on which side legally remits the tax. The less elastic side is less able to leave the market and consequently bears the larger share of the burden.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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