Question

How does an ad valorem tax differ from an ad rem tax, and which is likely to show more elasticity?

Answer 1

Ad Valorem Tax-

It is a tariff which is imposed by government on the value of a good or property.

Ad Rem Tax-

Ad Rem means anything applied to the point without any deviation. Specific tax is one such tax which is charged on the quantity of the product.

Difference-

The difference between Ad Valorem and Specific tax is that the former is paid by the customers whereas the latter is paid by the producers.

Elasticity-

The tax where the consumer burden will be more than the producer burden, that tax will said to be less elastic. In ad valorem tax, consumer burden will be more as it is paid by consumer on the value of goods like the sales tax. In case of specific tax producer burden will be more as it is paid by the producers on the quantity of good sold. Hence, Specific tax/ Ad rem tax will show more elasticity.