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Discuss four factors that influence tax shifting in an economy

Discuss four factors that influence tax shifting in an economy

Answers

i) Elasticity of demand and supply
The more the elasticity of the demand the lower the incidence on sales.The higher the elasticity of supply the higher the incidence on supply.
ii) Nature of market
In an oligopolistic market (few sellers and many buyers) tax shifting to buyers is high since few sellers can team up to determine the market price.
For many sellers and many buyers, a large portion of tax will be borne by sellers For a monopolistic market the entire tax burden falls on the shoulders of buyers.
iii) Government policy on pricing
Increase of government price control the supplier cannot increase price hence cannot shift tax burden to buyers
iv) Geographical location
If taxes are imposed on certain regions, it is hard to shift them to consumers because consumers will move to region of low tax
v) Nature of tax(direct or indirect)
Direct tax e.g. PAYE cannot be shifted whatsoever while indirect tax can be shifted through increase in prices.
vi) Rate of tax
If too high shifting can occur backwards or forward if too low it can be absorbed by the manufacturer.

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Wilfykil answered the question on February 13, 2019 at 08:12

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