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Briefly explain five factors that determine tax shifting.
i) Elasticity’s of demand and supply
The more the elasticity of demand, the lower the incidence on the 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 fall on the shoulders of buyers.
iii) Time available for adjustment
The person who can adjust faster (buyer or seller) will be to shift tax e.g. if the buyer can shift to substitute goods, the seller will bear the tax burden.
iv) Government policy on pricing
Increase of Government price control, the supplier cannot increase price hence cannot shift tax burden to buyers
v) Geographical location
If taxes are imposed on certain regions, it is hard to shift them to consumers because consumers will move to regions of low tax.
vi) Nature of tax (direct or indirect tax)
Direct tax e.g. PA YE cannot be shifted whatsoever while indirect tax can be shifted through increase in prices.
vii) Rate of tax
If too high shifting can occur backwards or forward If too low, it (an be absorbed by the manufacturer
skilled writter answered the question on May 3, 2018 at 17:32
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