State and briefly explain the factors that influence tax shifting.

Factors that influence tax shifting:

  • Type of tax – direct tax cannot be shifted but indirect tax can.
  • Objects of a tax – e.g. income tax can not be shifted.
  • Price elasticity of supply and demand
  • Availability of substitutes – goods without substitutes means consumer bear the tax.
  • Geographical coverage of the tax – can consumers move to other areas to avoid tax.
  • Rate of tax – higher tax rates means people try to shift tax.
  • Profitability of business – If businesses are making losses there is the likelihood of shifting the whole
  • tax to consumers.
  • Government fiscal policy – price control means no tax shifting.
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