Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.
Consider the following statements about impact of tax : A tax is shifted forward to consumers if the demand is inelastic relative to supply. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
Asked in UPSC CDS 1 2018 · Topic: Fiscal Policy & Revenue (Taxation System in India: Direct, Indirect taxes, and Tax Reforms (including GST))
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