Literature Review: The Effect of Particular Tax on the Distribution of Economic Welfare

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1. Introduction

2. Review of literature

2.1 The incidence of sin taxes

2.2 The incidence of tax on pure rent in a small open economy

2.3 Tax incidence in bargaining

2.4 The general equilibrium incidence of environmental taxes

2.5 The tax system incidence on unemployment: A country specific analysis for the OECD economies:

2.6 Tax and subsidy incidence equivalence theories: experimental evidence from competitive markets

2.7 Tax incidence under oligopoly: a comparison of policy approaches

2.8 The incidence of income tax on wages and labour supply

2.9 The incidence of personal income taxation: evidence from the tax reform act of 1986:

2.10 Tax incidence when individuals are time-inconsistent: the case of cigarette excise tax

3. Conclusion

1. Introduction:

Government generally collect taxes to generate revenue and question arise here is that after imposition of taxation, which group will bear the tax burden. After implementation of tax, there would be the division of tax burden between byres and sellers which is known as tax incidence. Tax incidence is linked to the price elasticity of demand and supply. If supply is more elastic than demand then the tax burden falls upon the buyers and when the demand is more elastic than supply then the producers will bear the cost of the tax. Tax incidence is basically the analysis of the effect of taxation on the distribution of economic welfare. Tax incidence expose that which group either consumer or producer is going to pay the price of new tax and it falls mostly on the group that has the inelastic price quantity or respond least to the price. Tax incidence or the tax burden does not depend on that where the revenue is collected but it depends upon the elasticity of demand and supply. The purpose of this review on the literature is that to analyze the effect of particular tax on the distribution of economic welfare. Section 2 is related to the literature review and section 3 is related to the conclusion.

2. Review of Literature

2.1 The incidence of sin taxes:
Kotakorpi (2008) has examined the incidence of taxation on sin commodities. Sin commodities are those commodities whose current consumption causes utility cost in the future. Consumers are considered to be time inconsistent or having too much consumption of unhealthy goods. Sin taxes means taxes on unhealthy commodities. In the context of monetary cost sin taxes would lead to influence the individual’s utility. Increase in the consumption of sin commodities would lead to a higher monetary cost or higher utility benefit from self controlling. The author has analyzed the welfare effect of the sin taxes and the welfare effect of sin taxes depends upon the elasticity of demand. The individuals with less income group having higher elasticity of demand as compare to the high income group. There is possibility of progressive taxation as the benefit is high for the less income group. He has measure the incidence on individual utility through the overall impact of the tax. Sin taxes would lead to increase the welfare if the demand for the unhealthy good is more elastic. For the case of poor demand is more elastic so the burden of sin taxes falls least on the poor as compare to the rich. It’s not necessary that taxation always hurts low income group but can be fair for the poor. The welfare of the economy would increases in case of sin taxes. 2.2 The incidence of tax on pure rent in a small open economy: Petrucci (2006) has investigate the effects of a land tax on capital structure and foreign investment in a life cycle small open economy with the assumption that labor supply is take as endogenous. Land is an as asset which is used as an input for the production. Tax on land means the higher would be the capital stock. The land tax leads to reduce the price of land but crowds out investment, consumption and welfare of...
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