Taxation and Price Control on the Economy

Running head : TAXATION AND PRICE CONTROL ON THE ECONOMY

Taxation and Price Control on the Economy

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Taxation and Price Control on the Economy

Introduction

It is the role of the government to provide health , education , and security services to its constituents to secure their welfare . In to finance all of the said roles and programs of the government to the country , tax collection is one of the ways by which the government can generate funds and usually being imposed to producers in the market Tax 's role

in the economy is not only for income generation of the government but also as a tool for the stabilization of the economy through moderating various business entities , thus affecting the supply and demand of goods and services in the market . In this regard , this aims to identify which party tax is being levied between consumer and producers as well as its effects on the level of prices , demand , and supply in the economy

Consumers versus Producers

Theoretically speaking , tax is being imposed to the producers in the market . Like for instance , producers of cigarettes and liquors are being charged of sin tax since the said products are considered to be socially unacceptable products . Sin tax does not only discourage the production of socially unacceptable goods , such as cigarettes and liquors , it also generates more funds to the government and protects the interest of consumers in the market . The government cannot prohibit the selling of these socially unacceptable goods due to certain reason , yet considering the harmful effects of the above mentioned products , what the government could least do is to discourage its extensive production through levying higher taxes to its producers (GMA News , 2007 . But since cigarettes and liquors are addictive in nature , its producers will now have enough room to pass the sin tax that they incur from the government through raising the prices of their products in the market In other words , at first , the tax is being levied on the producers , but once the producers pass the tax to the consumers through price increases , then , that is the only time when one can consider that tax is being levied on the consumers

Impacts of Tax on Demand and Supply

Since tax is being levied directly from the government to the producers , tax can therefore affect the operational costs of producers in the market . Producers of elastic goods in the market are forced to cut down their production level once the government increased its tax rate in to maintain their profitability and protect their interests . Elastic goods are type of products or services which quantity demanded changes dramatically with a corresponding price change (Moffatt , 2008 . Due to this characteristic of elastic goods , producers cannot pass the tax that they receive from the government since it will only result to the depreciation of consumer 's demand level in the market . Products such as restaurant meals are considered to be elastic goods , and by the time its...