Question
Which of the following best explains the cascading effect of taxation?
- When tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.
- When tax imposition leads to a disproportionate decrease in prices by an extent more than the rise in the tax.
- When tax imposition leads to a disproportionate decrease in imports.
- When tax imposition leads to a disproportionate decrease in exports.
Answer: Option B
Answer: (b)
“Taxation over taxes” or “cascading-effect” of the taxes adds to the deadweight loss i.e. slump in total surplus of a supply chain consisting of the supplier, manufacturer, retailer and consumer.
Due to cascading tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.
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Answer: (b)
“Taxation over taxes” or “cascading-effect” of the taxes adds to the deadweight loss i.e. slump in total surplus of a supply chain consisting of the supplier, manufacturer, retailer and consumer.
Due to cascading tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.
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