An increase in the local retail sales tax rate will increase revenue collected by a local government:

Question

Quizplus · Accepted Answer

If the tax base is inelastic, it means that consumers are not very responsive to price changes and will continue to purchase goods even with the increase in the sales tax rate. This will lead to an increase in revenue collected by the local government. If the tax base is elastic, consumers will respond to the price increase by reducing their purchases, leading to little to no increase in revenue for the government. A unit elastic tax base means that the increase in sales tax rate will lead to an equal decrease in the quantity demanded, resulting in no change in revenue for the government. Therefore, C is the correct choice as an increase in local retail sales tax rate will only increase the revenue collected by a local government if the tax base is inelastic.

An Increase in the Local Retail Sales Tax Rate Will