Question

If these products had an excise tax placed on them, who would wind up paying the...

  1. If these products had an excise tax placed on them, who would wind up paying the tax (the buyer or the seller) and why?
    1. Gasoline
    2. Super Bowl tickets
    3. Luxury cars
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Answer #1

Statutory incidence of tax in case of excise tax lies on the seller of the product which implies that the tax receipt is deposited by the seller. However by increasing the price of the product, seller actually passes a portion of tax on to the buyer as well.

a) in case of gasoline buyer contributes a greater proportion of tax because gasoline has inelastic demand which indicates that tax burden is shared more by the buyer and less by the seller.

b) the demand for Super Bowl tickets is highly inelastic and once again it is the buyer who contributes a greater proportion in the tax

c) luxury cars have generally elastic demand and therefore if there is an excise tax a greater proportion will be paid by the seller

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