Economics

The taxes that are levied on goods, as well as services, lead to harm in addition to distorting the effective operation of a country’s economy and in that case, need not be levied. The attribute of economic efficiency addresses the manners in which countries maximize the use of economic resources that are at their disposal. The traditional economic resources encompass land, capital as well as labor, with the concept of efficient operations of an economy being a regular discussion topic for the different economies all over the world. Through the assertions put forward by the Keynesians, the common premise is on the discretionary policies that normally advocate for the employment of monetary or fiscal policies as the primary basis for the management of the economy (Akila, 2009). 

On the tougher hand, the classical economists hold a different position, offering the suggestion that it is always imperative that the economy is left on its own, allowed to operate by itself. The classical view is the overall proposition that I will be observing in this discussion. I agree with the position that the taxes possess a distorting effect on the efficient operations of the economy and thus need to be levied to curtail this ineffectiveness (Grigor'eva & Khailov, 2014). Taxes fall under the classification of fiscal policies, and the objective of levying the taxes is to impact the consumption of the citizenry and is dependent on the health of the country’s economy.

In this case, the taxes have a direct impact on the demand for services and product in any given economy. In the event, there is an increase in the tax levied on a product in the form of the value added tax; the most likely situation is that the demand relating to the specific product is going to decrease. The additional impact of the increase in tax of products is that it results in the reduction of the real income of the population in that economy as most of their earning are used in paying for the taxes levied on the products they use (Potter, 2005). The increase in the tax has the consequent impact of curtailing the purchasing power of the citizenry on any given economy, in addition to the fact that it adversely affects the disposable income of the population in the region. The reduction in income makes it imperative that the potential customers to prepare a scale of preference whereby certain goods are given preference over others as they are considered to be essential than the others. A similar case is seen for the diverse goods in that the population of a certain region is compelled to make investments relying on the inferior necessity (Norris, 2014). The fact that no taxes will be levied implies that the demand for the products and services in the economy is going to be determined by the efficiency of the free discretionary policies that dictate efficiency on the operation of the economy.

The additional adverse impact that the levying of taxes has relates to the supply concept, following the common trend where raw materials as well as other production factors that facilitate the production of goods, as well as services, are levied taxes. The imposition of taxes on the production means has the overall effect of increasing the costs of production, which directly impacts the supply of the products. The most common trend is whereby the producer instead of the supplier decides to maintain the supply of the products while passing the tax burden to the consumers by increasing the prices of their products (Excise taxes, 2015). In that case, the tax impact on the production cost will have an indirect impact on the consumers.  The tax attribute is an additional factor taken into consideration about the issue of promoting the efficiency of their economy in that it determines the amount of tax an individual pays for a certain product. In the event the demand is more elastic than the supply, it follows that there is a high likelihood that the consumer is going to incur the tax burden.

Conversely, when there is less elasticity in the supply, it is common that the supplier of the goods and services will incur the taxation costs as the consumer is not able to pay more for the product or service. It falls under the discretion of the seller to increase the prices of his products in an effort to accommodate the tax burden (Akila, 2009). The overall attribute is that the elasticity of the product defines the willingness of the buyer to accommodate the high price, which results from the shifting tax burden. The possibility of the availability of substitutes impacts the operations of the economy’s efficiency about the subject of taxes. In this case, the overall premise is that the effect of demand and supply being reliant on the diverse choices available to the consumers. On those occasions that there is an increase in taxes affecting a certain product, the consumers will start looking for alternatives that have lower costs. If the alternative is available, the consumers will not be willing to purchase the original product that has inflated prices. Conversely, if there are no alternatives, the consumers may not have an option but to accept to buy the product that has hiked process (Akila, 2009). 

 

References

Akila, W. (2009). Principles of Microeconomics: Global Financial Crisis Edition. Chicago: Cengage Learning Press.

Excise taxes. (2015). Columbia Electronic Encyclopedia, 6th Edition, 1.

Grigor'eva, E., & Khailov, E. (2014). On Chattering Solutions for the Maximum Principle Boundary-Value Problem in the Optimal Control Problem in Microeconomics. Computational Mathematics & Modeling, 25(2), 158-168. doi:10.1007/s10598-014-9216-3

Norris, F. (2014, April 12). Total Taxes on Wages Are Rising. New York Times. p. B3.

Potter, M. (2005). State Taxes in Serious Need of Reform. Policy, 21(2), 21-27.

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