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Define The Term Taxation And Deadweight Loss Of Taxation

Referencing Styles : MLA | Pages : 1
  • University: California Intercontinental University
  • Country: US

Taxation is the imposition of the compulsory values which is levied on the individual or has been imposed by the government. In every country the tax is levied, primarily the feature of tax is to gain revenues over government expenditures although the purpose is not to serve. However the taxation has certain natures and are classified to the direct and indirect taxation. Thus in order to know about taxation, there is need to know about the taxation history, pros and cons of taxation, economic effects of taxation including shifting and incidence. Furthermore there is also a need to know about the effect of fiscal policy, governmental economic policy as well as a knowledge about the international trades and tariffs. Governmental revenue has been the most important part of taxation. The tax values in governmental perspective is not paid or exchanged to specific thing such as public debt, public assets and public debt values while the tax values are independent towards the tax liability in order to finance retirement benefits, medical payments and other social securities and programmes. Hence all of these could likely to benefit the tax players and payroll areas. Such parties are called as the contributors. Considering an example of tax is the benefits received such as transport charges and construction are fully tax levied.

On the other hand the deadweight loss can be considered as the loss caused by the economic efficiency and tax payments. On the other hand deadweight loss of taxation is the measurement of how far the tax could reduce the standard of living among the taxed population. Hence in a nutshell it is change between the two levels of output by measuring the additional net receipts to government. Here the net receipts are additionally smaller than the loss in productive output in the cases where the supply curve is vertical or flat. Considering an example of US government had imposed tax on the people over there. Now Through this the government is expected to collect over 1.2 trillion tax amount. However those government funds are no longer available for spending in the private market. Now if the consumer investment and spending are declined to at least by $1.2 trillion and total output is declined to $2 trillion. Hence the deadweight loss is subjected to $800 billion.

  • However there are certain causes of deadweight loss and it is proved to be measured. Hence it is valued in the free market and are inefficient.
  • Tax results in a higher production cost and high market price. This in turn could create a smaller production volume than it could have exist. Thus it can be said that the gap between the taxed and tax free production are been termed as dead weight loss.
  • This loss is fully dependent upon the shapes and elasticity of supply and demand curve.

Effects of imposing a tax on price and quantity in a market.

In order to know about the tax effects over product price and market quantity it is important to know about certain things about taxation. However there are certain assumptions relating t this aspect-

A sales tax is a revenue proportional or quantity proportional aspect. The quantity proportion sometimes differs somewhat in other cases.

It is largely proportional to this aspect where the main introduction is taken over imposing of sales tax by competitively focusing on the statistics between without sales aspect and other imposed sales tax value. Here most of the analysis is taken to increase the sales tax value. Conversely the sales value would be considered in making any opposite effects.

  • Here for benefits of calculations the taxation is conducted over short run rather going for long run.
  • The tax value is calculated in the basis of compliance with the tax laws rather than going for tax evasion.
  • Now in order to understand the effect of sales tax in a single good with a competitive market are as follows-
  • Where there no such sales tax.
  • A world where the sales tax are imposed over any single good and which are drawn over the supply and demand curve.
  • However there are three kind of diagrams used for this case. These are-
  • Considering the world without sales tax. Thus it will t easy to draw out the supply and demand curves to be drawn in the pre-tax aspects.
  • Considering the world of sales tax where they need to consider supply and demand curves with respect to post tax prices.

Pre-tax prices analysis:

  • In order to perform the comparative statistics between the pre and post- tax value in the world of sales tax. Thus it is assumed that the sales tax prices over demand and supply curve is to be made without tax since the prices are considered in pre-tax price by the seller.
  • In the case of analysing the demand curve, the change in the demand curve are shifted downward. As per the law of demand rule the same could be moving inward i.e.  Concentrations has been provided on the demand side.

Post – tax analysis:

  • In the case of any post tax analysis the demand curve for the same without the world of sales tax and with the world of sales tax will vary since the buyer calculates the same in the proportion of post- tax prices.
  • On the other hand the same could be calculated at the time to describe the supply curve. Generally the supply curve do move forward. Hence assuming the law of supply rule, it can be seen that the supply curve will be moving upward. Thus to connect over the supply curve, arithmetically the movement of the new supply curve will change than the old supply curve.

Thus it can be concluded that the pre-tax analysis on goods and services will be lower than the price with tax value.


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