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Economics Indirect Taxes and Subsidies., STRENGTHS AND WEAKNESSES OF…
Economics Indirect Taxes and Subsidies.
Indirect taxes: taxes on expenditure
Discourage bad goods
Generate Tax Revenue
Encourage "good goods"
TYPES OF TAXES:
Issues with tax
A subsidy is a grant from the government which also effect of reducing cost of production.
STRENGTHS AND WEAKNESSES OF SUBSIDIES
Increase output of "good"
Increase employment
Can encourage inefficiency. Does not lead to innovation
Opportunity cost (could be spent elsewhere).
Government failure (What level can subsidy be set at?)
PED
Ad valorem.
specific taxes
Ad Valorem- lead to inequality as it is a regressive tax.
Effectiveness depends on PED and consumer rationality.
Need information in order to get the level correct.
Who will the tax burden fall on.
It causes the supply curve to shift outwards.
DIAGRAMS: Ad valorem is a skewed shift,
Specific is a parallel shift.
