$100000 A town in New York currently has a $2.00 per unit tax on sales of cigare

Question

$100000 A town in New York currently has a $2.00 per unit tax on sales of cigarettes. Annualy, 50,000 packs of dgareles are sold, and sothe lown colle The mayor proposes that the lax be increased to $3.00 per pack If the mayor uses static tax analysis, he expects that the new tax revenue will be s (Round your anower to the nearest dolar) Using dynamic tax analysis, it is likely that the tax base will f the lax is imposed, and thus the new tax revenue will be the tax revenue based on the assumptions of static tax analysis

Explanation / Answer

Static Tax Analysis : It is based on the assumption that changes in the tax rate will leave the tax base unaffected .

Hence , packs sold = 50,000 . New tax rate = $3.00 per pack .

New tax revenue will be = 3* 50,000 = 1,50,000 dollars

Dynamic tax analysis : Assumes that higher tax rates may shrink the tax base .

It is likely that the tax base will shrink or decline if the tax is imposed , and thus the new tax revenue will be lower than the tax revenue based on the assumptin of static tax analysis .

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.