No, the tax incidence imposes its burden on the LEAST sensitive party to changes in price, not the most sensitive. In your example of cigarettes, even if the price goes up, few smokers stop smoking or smoke any less. That means their consumption is not very ³elastic² and not very ³price sensitive².
In the case of a uniform tax on all goods, the consumers will bear all of the burden. Of course, if the tax were not uniform, consumption patterns could change in response to the price. Imposing a tax on wheat, for example, would make the price of wheat products increase. The price might only be able to rise a little, however. Then consumers would start to buy more corn, oats, and barley, instead of wheat. Their consumption of wheat is elastic and price sensitive because substitutes are available. But a uniform consumption tax, like you have been discussing, would not allow any product substitution. The demand would not be elastic. The consumers will either pay more for the same goods, or their standard of living will go down. The consumers will bear the burden. Harland Harrison LP of San Mateo County CA on 4/10/08 8:47 PM, Brian Holtz at [EMAIL PROTECTED] wrote: > Kevin Bjornson wrote: >> >> >> KB) all taxes are paid by consumers in a normal business environment. The >> costs must be and are passed on to consumers. (KB > > No, tax incidence depends quite uncontroversially on elasticities of supply > and demand, and falls on those most sensitive to changes in price. A tax on > cigarettes falls on consumers; a tax on candy bars falls on producers; the > employer's part of the payroll tax actually falls on the employees. For > details, see http://en.wikipedia.org/wiki/Tax_incidence. Other crucial > concepts include producer surplus, consumer surplus, and deadweight loss. > > Cursory searches suggests that the topic of tax incidence doesn't seem to be > covered in the old libertarian standard, Hazlitt's Economics In One Lesson > <http://prawo.uni.wroc.pl/~kwasnicki/EkonLit/Economics%20In%20One%20Lesson.pdf > > , nor in my current favorite economics overview, Fred Foldvary's Science of > Economics <http://www.foldvary.net/economics.html> . I'm cc'ing Fred in case > he can recommend a text to supplement his, or -- more generally -- what one or > two books he would recommend someone should read to have a rudimentary grasp > on the economics of public policy. My default choice for another source > would be either a macroeconomics textbook like Mankiw's (even though it makes > the standard mistake of conflating land and capital), or the Concise > Encycopedia of Economics <http://www.econlib.org/library/CEECategory.html> > available online from the indispensible Library of Economics and Liberty. >
