Economics 1021A/B Lecture Notes - Federal Insurance Contributions Act Tax, Tax Incidence, Demand Curve

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

Everything you earn and most things you buy are taxed. Income tax and the social insurance taxes are deducted from your pay, and hst is added to the price of most of the things you buy. Tax incidence is the division of the burden of a tax between buyers and sellers. When an item is taxed, its price might rise by the full amount of the tax, by a lesser amount, or not at all. If the price rises by the full amount of the tax, buyers pay the tax. If the price rise by a lesser amount than the tax, buyers and sellers share the burden of the tax. If the price doesn"t rise at all, sellers pay the tax. Tax incidence doesn"t depend on tax law! The law might impose a tax on buyers or sellers, but the outcome will be the same.