1.2.9 Taxes and Subsidies (Micro)

INDIRECT TAX

An indirect tax is a government imposed tax that is charged on producers of goods and services and is paid by the consumer indirectly.

MAIN INDIRECT TAXES IN THE UK

EXCISE DUTIES

Are a form of indirect tax put on producers of goods and services often leading to an increase in price and is indirectly paid for by consumer in order to prevent bad behaviour (ie cigarette tax)

DIFFERENT EXCISE DUTIES IN THE UK

• Values added after tax

• Fuel excise duty

• Sugar tax

• Tobacco duties

TAX INCIDENCE

 

However much of the tax burden the producer decides to put on the consumer. Who truly pays

INDIRECT TAX GRAPH

AN INCREASE IN INDIRECT TAX WILL DECREASE SUPPLY, SHIFTING THE ENTIRE SUPPLY LINE INWARDS (TO THE LEFT).

Consumer will receive most of the tax burden

SUBSIDY DEFINITION

A subsidy is a payment from the government to a producer to lower their costs of production and encourage them to produce more

GOVERNMENT SUBSIDY

It is any form of government support- financial or otherwise- offered to producers and consumers.

EXAMPLES OF GOVERNMENT SUBSIDIES

EFFECTS OF SUBSIDIES

• Subsidies help maintain lower prices for consumers, which helps households on low and fixed incomes.

• They increase the employment rate, by making workers more skilled through apprenticeship schemes and lowering the cost of employing workers.

• Subsidies could help control inflation, by keeping costs of production low.

SUBSIDIE GRAPH

AN INCREASE IN SUBSIDY WILL SHIFT THE ENTIRE SUPPLY LINE OUTWARDS (TO THE RIGHT).

This is because subsidies reduce production costs, acting as an incentive for producers to increase output at any given price.