There is a difference between who is legally required to send a tax payment to the government and who bears the burden of the tax.Which of the following would have the most impact on who bears the burden of an excise tax?
A)whether the tax is imposed by the federal government or a state government
B)whether the tax is based on the ability-to-pay principle or the benefits-received principle
C)the elasticity of demand for the item that is taxed
D)The motive for the tax. If the tax is designed to raise revenue, more of the burden will fall on firms. If the tax is designed to achieve a social objective (for example, to discourage smoking)more of the burden will fall on consumers.

Question

Quizplus · Accepted Answer

The elasticity of demand for the item that is taxed has the most impact on who bears the burden of an excise tax. If the demand for the item is inelastic (i.e. consumers are willing to pay for it regardless of price) then more of the tax burden will fall on consumers. However, if the demand for the item is elastic (i.e. consumers are sensitive to changes in price) then more of the tax burden will fall on producers.

There Is a Difference Between Who Is Legally Required to Send