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The Pigovian taxes are non-distortionary. For example imagine situation where government optimal spending is 100e and before Pigovian tax all 100e was raised through income tax which creates distortions on Labour market. Let’s say that after imposing Pigovian tax government gets additional 30e. Now since government needs only 100e for its optimal spending it ...


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In microeconomics you can analyze tax incidence on supply demand graph. If you levy tax on consumers this will shift demand curve to the right. However, this does not mean that whole tax burden rests with consumers. The tax drives a wedge between the price that consumers pays and the price that consumers receive. The whole tax burden is the triangle ABC ...


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While many folks treat reductions in government revenue as equivalent to spending, they’re not actually the same thing. Tax cuts don’t “cost” anything. Tax cuts represent less money coming in, while government spending (such as repayment of student loans) represent more money going out. So your first thought when seeing the two things treated as if they were ...


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In this equation: GDP = C + I + G + NX Taxes come from a combination of C+I but are offset by an increase in G. Any government taxation which is not spent is an investment, so remains part of I.


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The other answers already provided some intuition so I will try to be slightly more technical (although not so that a non-economist would not be able to follow). tl;dr: Government cannot prevent passing tax burden just by controlling prices (at best it can mitigate it and even that at the expense of workers). Generally to prevent the passing of the burden it ...


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I don't see how the government taking X% of a business's profits is stopping the business from increasing prices (or is this just the penalty in the enforcement clause?), so I am going ignore that part. What you are describing is essentially setting prices, determining what prices a business can and cannot set. (If you merely prohibited passing on costs, ...


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You have to make sure you use the same source of tax data for a meaningful comparison because it matters what is included in that total tax revenue and what isn't. 1muflon1 suggested using OECD data which at least on that page doesn't have Argentina. The IMF data available through World Bank does have it, but my point is that if you compare the two graphs ...


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I am not sure how you calculated the tax revenue in relation to GDP, but one measure would be tax revenue as % of GDP. This is quite common measure of how heavy the taxation is because it tells you what percentage of total output produced by country is collected by government. OECD provides data on this measure here. However, it can always happen that even ...


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This might be a basic answer not befitting Stack Exchange (but it's a basic question): Everyone does. You want to buy things for a price as low as possible. You want to sell things for a price as high as possible (you probably only sell labour, unless you run a business). Those two pressures find a balance at some particular price, and that is the price. ...


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In US for most products government does not set prices (although there can be exceptions). People are free to set whatever prices they want, but in the end prices are set by market. In a perfectly competitive market if a firm sets price higher than market price nobody will want to buy goods from you and since in competitive market the prices are already ...


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Luxury goods tend to be Veblen goods, so reducing taxes on them doesn't make them more attractive. They also tend to be goods whose value is mainly based on scarcity, so increasing demand doesn't increase the amount supply, it just increases the equilibrium price. If diamonds were cheaper, would there be significantly more diamond jobs? There's the ...


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