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Factors that influence extent of forward shifting
Forward shifting refer to shifting the tax burden to consumers through increase in selling price.
i) Nature of markets- The type of market may have a bearing on the tax shifting. In a market where there are few sellers and many buyers, the sellers can team up to determine the market price
For a monopolistic market, the entire tax burden falls on the shoulders of the buyer.
ii) Rate of tax –the tax rate can affect the nature of tax shifting.If too high, shifting can occur forwards.
iii) Geographical location-if taxes are imposed on certain regions which are not very far, it is hard to shift taxes forward since the consumers will move to regions with low taxes.
iv) Nature of taxes- type of tax i.e. whether direct or indirect. In the case of direct taxes these cannot be shifted, while indirect taxes can be forward shifted through increase in prices.
v) Government policy: When the government increases the amount of tax levied on products such as beer or cigarettes companies increase prices of these goods and shifts the tax to the buyer.
Wilfykil answered the question on February 13, 2019 at 08:22
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