You just won a contest and have been appointed State of CT Tax Commissioner (you

Question

You just won a contest and have been appointed State of CT Tax Commissioner (you might be asking, why did I enter such a contest? :)).

Your primary goal is twofold: raise revenue and make the tax code more efficient.

You have to decide which goods to tax, which goods to raise taxes on and which good to lower taxes. Consider your knowledge of elasticity, supply and demand. You need to close a $500 million budget gap for the State.

1. Alcohol, tobacco and gasoline are already heavily taxed. Should you raise these taxes? Explain your answer.

Explanation / Answer

Yes, I should raise the tax on the Alcohol, tobacco and gasoline , Which are already heavely taxed because demand for these goods are inelastic as the elasticity of demand for all of these commodities is very less . Since the lasticity of demand is less , when the tax increased , due to the increase in tax , the wuantity reduced due to increased tax and hence increased price will be very less thus more of tax revenue can be collected by imposing tax on these goods then imposing on goods whose demand are elastic.

If you don't understand anything, then comment, I will revert back on the same.

And If you liked the answer then please do review the same. Thanks :)

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