[Lemmy]

Quantum_Wizard Quantum_Wizard:

Lemmy, obviously I didn't mean that consumers care about the cost of production. When you increase a tax on producers they could either not adjust their prices in which case they take a hit in form of having bigger portion of their profits going to taxes, or they can incorporate the increased tax to the prices and take a hit in form of reduced sales. If they face a very inelastic demand, i.e. the amount demanded by consumers doesn't change much when the price changes, then the producers take the smallest hit if they incorporate most of the tax increase into the prices and thus consumers bear most of the burden. If demand is very elastic, the opposite happens.

The Wikipedia page on tax incidence has examples. Do you disagree with what that page says?

I teach economics for a living. I'm not terribly interested what Wikipedia says. But I don't think you're comprehending what elasticity is. In practise, there are very few markets that are inelastic. Even goods that are inelastic are usually sold in competitive markets, thereby making an inelastic good elastic for the consumer. For example, gasoline is an inelastic good, but since there are so many retailers, for the consumer, it's almost perfectly elastic. All retailers are price takers, so the demand curve for gasoline is flat. If one retailer decides to raise its prices (in an attempt, let's say, to pass on increased costs to the consumer) then their sales will fall to zero.

In competitive markets, businesses are likely operating at minimum cost pricing. If their costs change, that comes out of their bottom line. They cannot pass those costs on to the consumer. If they try, the consumer will shop elsewhere.

[Quantum_Wizard]

Quantum_Wizard Quantum_Wizard:

Mr_Canada Mr_Canada:

Restrictions on advirtising is what has been detrimental to smoking. Not taxes. Mass awareness programs. I'm not saying awareness isn't an option, that is properly the cure. I have no faith in capitalism to maintain such a position, as perhaps they'd be economically interested in being lighter on advirtising against drugs in favour of more profits. And no, I really see no difference between the corporation and the government getting money from vices and then being put in charge of discouraging use.

Mr_Canada, the suggestion was to tax things like pollution, not tobacco. I'm saying this for the second time.

Actually, let me revise this a bit. Of all the panelists Luigi Zingales did give the example of tobacco. But everyone else just mentioned things like gasoline.

[Public_Domain]

[Quantum_Wizard]

Lemmy Lemmy:

I'm not terribly interested what Wikipedia says.

Well then, let me repeat it here then, as you seem to care what I say at least, since you respond to my posts. Basically the page has two example graphs with supply and demand curves. One has a demand curve with a very shallow (downward) slope. I.e. the demand is very elastic. Now, introducing a tax shifts the supply curve upward and since the demand curve has only a shallow slope (and supply curve doesn't) the price doesn't go up much and producers bear most of the burden of the tax. Second graph has a demand curve with a steeper slope and here introducing the tax causes a larger price increase and make consumers bear a larger portion of the tax. Having even steeper slope (a very inelastic demand) would make the consumers bear an even larger portion. Do you disagree with these conclusions?

Lemmy Lemmy:

But I don't think you're comprehending what elasticity is.

I think I do comprehend what elasticity is.

Lemmy Lemmy:

In practise, there are very few markets that are inelastic.

But do you agree that for those products for which the demand really is inelastic, consumers would bear a larger part of any possible tax increase?

Lemmy Lemmy:

In competitive markets, businesses are likely operating at minimum cost pricing. If their costs change, that comes out of their bottom line. They cannot pass those costs on to the consumer. If they try, the consumer will shop elsewhere.

The demand curves which an individual company faces and the whole industry faces are different.

An individual company very likely faces an elastic demand and so if their costs increase, but the costs of their competitors don't, then that cost does come out of their bottom line.

But if the costs increase for the whole industry rise, which a tax increase would do, may fall in larger part to the consumer if e.g. the demand is inelastic.

[kilroy]

Lemmy Lemmy:

I teach economics for a living. I'm not terribly interested what Wikipedia says. But I don't think you're comprehending what elasticity is. In practise, there are very few markets that are inelastic. Even goods that are inelastic are usually sold in competitive markets, thereby making an inelastic good elastic for the consumer. For example, gasoline is an inelastic good, but since there are so many retailers, for the consumer, it's almost perfectly elastic. All retailers are price takers, so the demand curve for gasoline is flat. If one retailer decides to raise its prices (in an attempt, let's say, to pass on increased costs to the consumer) then their sales will fall to zero.

In competitive markets, businesses are likely operating at minimum cost pricing. If their costs change, that comes out of their bottom line. They cannot pass those costs on to the consumer. If they try, the consumer will shop elsewhere.

I don`t think we are dealing with any individual retailers in a discussion about whether there is corporate taxation, and how it works, and I don`t think we are talking about competitive markets in many things any more, given the size and trans-national nature of our mega-corporations. Vertical and horizontal integration in the name of minimum cost pricing to the point where there is a handful of companies world wide controlling such huge segments of the markets may look like competition to the CEOs but for all intents and purposes there is none for consumers. In these non-competitive situations, in these minimum cost pricing/ maximized returns situations, in these cases where social costs are often swept under the carpet in the name of corporate profits there is every reason to tax corporations.

Many of the reasons may also be non-economic in tradional terms, but true anyway in a world recognizing the ecologic/economic nature of our existance. For example in the case of climate change, the price a company sells for should include the cost to the planet of the carbon content of its product. I expect there are a couple of companies that would decline to do that for fear of the inelastic nature of their product. If a government orders and recovers in the name of the damage being done those additional costs will have to be incorporated in the companies plans one way or the other, and if it means there is a reduction in demand for those products that is as it should be.

[Lemmy]

Quantum_Wizard Quantum_Wizard:

Lemmy Lemmy:

I'm not terribly interested what Wikipedia says.

Well then, let me repeat it here then, as you seem to care what I say at least, since you respond to my posts. Basically the page has two example graphs with supply and demand curves. One has a demand curve with a very shallow (downward) slope. I.e. the demand is very elastic. Now, introducing a tax shifts the supply curve upward and since the demand curve has only a shallow slope (and supply curve doesn't) the price doesn't go up much and producers bear most of the burden of the tax. Second graph has a demand curve with a steeper slope and here introducing the tax causes a larger price increase and make consumers bear a larger portion of the tax. Having even steeper slope (a very inelastic demand) would make the consumers bear an even larger portion. Do you disagree with these conclusions?

No, not necessarily.

Quantum_Wizard Quantum_Wizard:

I think I do comprehend what elasticity is.

We'll see. So far, that doesn't seem true.

Quantum_Wizard Quantum_Wizard:

But do you agree that for those products for which the demand really is inelastic, consumers would bear a larger part of any possible tax increase?

No, not necessarily. We need more information before we could make that claim. Businesses cannot price above consumers' willingness to pay. Let's assume we're operating on the inelastic segment of the demand curve. As we reduce peoples' quantity purchased (moving leftward on the demand curve) in response to price changes, we're moving closer and closer to the point of unitary elasticity. Eventually, as Q falls, we're onto the elastic segment. Then the price increase leads to reduction in producer revenues.

Again, it's easy to say that businesses will just pass on costs to consumers. But that ignores consumer demand. There's a limit to businesses ability to do so. In general, competition prevents it.

Quantum_Wizard Quantum_Wizard:

It if the costs increase for the whole industry rise, which a tax increase would do, may fall in larger part to the consumer if e.g. the demand is inelastic.

Nope, that's too general a statement. You can't make such a claim without more specific information.

edit to correct quotes.

[Lemmy]

kilroy kilroy:

I don`t think we are dealing with any individual retailers in a discussion about whether there is corporate taxation, and how it works, and I don`t think we are talking about competitive markets in many things any more, given the size and trans-national nature of our mega-corporations. Vertical and horizontal integration in the name of minimum cost pricing to the point where there is a handful of companies world wide controlling such huge segments of the markets may look like competition to the CEOs but for all intents and purposes there is none for consumers. In these non-competitive situations, in these minimum cost pricing/ maximized returns situations, in these cases where social costs are often swept under the carpet in the name of corporate profits there is every reason to tax corporations.

Many of the reasons may also be non-economic in tradional terms, but true anyway in a world recognizing the ecologic/economic nature of our existance. For example in the case of climate change, the price a company sells for should include the cost to the planet of the carbon content of its product. I expect there are a couple of companies that would decline to do that for fear of the inelastic nature of their product. If a government orders and recovers in the name of the damage being done those additional costs will have to be incorporated in the companies plans one way or the other, and if it means there is a reduction in demand for those products that is as it should be.

Now you're throwing extra wrinkles into the scenario. Essentially you're presuming collusion or some sort of monopolistic or other form of market power. That's fine. I was merely calling out the initial phrase that "businesses will pass costs of tax increases on to consumers". That's a false statement because competition and the limits of peoples' demand generally prevents it. There may be rare cases where it's possible, but that's the exception rather than the rule. Generally businesses must suck up tax costs from their bottom lines.

[andyt]

Quantum_Wizard Quantum_Wizard:

Mr_Canada, the suggestion was to tax things like pollution, not tobacco. I'm saying this for the second time.

Nope, the suggestion was to tax both. The idea is to tax those things you want less of.

[andyt]

Lemmy Lemmy:

In competitive markets, businesses are likely operating at minimum cost pricing. If their costs change, that comes out of their bottom line. They cannot pass those costs on to the consumer. If they try, the consumer will shop elsewhere.

Walmart operates in a competitive business, yet seem to be making huge profits - ie not at minimum cost pricing.

[kilroy]

Lemmy Lemmy:

kilroy kilroy:

I don`t think we are dealing with any individual retailers in a discussion about whether there is corporate taxation, and how it works, and I don`t think we are talking about competitive markets in many things any more, given the size and trans-national nature of our mega-corporations. Vertical and horizontal integration in the name of minimum cost pricing to the point where there is a handful of companies world wide controlling such huge segments of the markets may look like competition to the CEOs but for all intents and purposes there is none for consumers. In these non-competitive situations, in these minimum cost pricing/ maximized returns situations, in these cases where social costs are often swept under the carpet in the name of corporate profits there is every reason to tax corporations.

Many of the reasons may also be non-economic in tradional terms, but true anyway in a world recognizing the ecologic/economic nature of our existance. For example in the case of climate change, the price a company sells for should include the cost to the planet of the carbon content of its product. I expect there are a couple of companies that would decline to do that for fear of the inelastic nature of their product. If a government orders and recovers in the name of the damage being done those additional costs will have to be incorporated in the companies plans one way or the other, and if it means there is a reduction in demand for those products that is as it should be.

Now you're throwing extra wrinkles into the scenario. Essentially you're presuming collusion or some sort of monopolistic or other form of market power. That's fine. I was merely calling out the initial phrase that "businesses will pass costs of tax increases on to consumers". That's a false statement because competition and the limits of peoples' demand generally prevents it. There may be rare cases where it's possible, but that's the exception rather than the rule. Generally businesses must suck up tax costs from their bottom lines.

I do think it is fine to presume market share is equivalent to market power. All I am saying is that if a company has the ability to pass on taxes that must be paid, they will. If we as a society determine that an industry should be paying its taxes, those that are pertinent to income and the industrial impacts, even if it means that industry fails, we will.

I said,

"I see corporate taxes as a tax on consumption since the person who ultimately pays the tax is the purchaser of the product of the company. The whole argument seems to me to be redundant if not an actual red herring. Companies build into the price of their product the costs of doing the business, including taxes, and tax avoidance costs."

Your reply,

"Costs have nothing to do with demand and pricing comes from demand. The notion of "passing the costs on to the customer" isn't supported by economic theory nor empirical research."

is an indication to me that theoretical ponderings are removed from reality. Of course costs are a segment of demand. How could it be otherwise?

[andyt]

Lemmy Lemmy:

Now you're throwing extra wrinkles into the scenario. Essentially you're presuming collusion or some sort of monopolistic or other form of market power. That's fine. I was merely calling out the initial phrase that "businesses will pass costs of tax increases on to consumers". That's a false statement because competition and the limits of peoples' demand generally prevents it. There may be rare cases where it's possible, but that's the exception rather than the rule. Generally businesses must suck up tax costs from their bottom lines.

Food, say. Already a low margin business. Extend the HST to food, and you'll pay more, guaranteed. Business won't lower its prices just because the consumer has to pay more for the product. We had this happen in BC. (not with food, but with HST taxable goods and services) We were assured that with 2 billion in taxes annually being shifted from business to the consumer, businesses would pass their savings on to the consumer to compete. Didn't happen.

[Brenda]

andyt andyt:

Lemmy Lemmy:

In competitive markets, businesses are likely operating at minimum cost pricing. If their costs change, that comes out of their bottom line. They cannot pass those costs on to the consumer. If they try, the consumer will shop elsewhere.

Walmart operates in a competitive business, yet seem to be making huge profits - ie not at minimum cost pricing.

Walmart is weird (just taking it to macro level (as in consumer)...)
I buy a lot of the same product at Walmart. Yesterday, I paid $2 each. Last week, they wanted $2.97 for the same product. A few days prior to that, it was $2. It has been going like that forever. And no, not on roll back, on sale or anything. Just regular price.
Strange...

[Public_Domain]

[Lemmy]

kilroy kilroy:

Of course costs are a segment of demand. How could it be otherwise?

Because they aren't. At all. In any way. When you go to buy shoes, your demand for shoes comes from how much you like them, not how much it cost the company to make them. If the cost of rubber went, that doesn't make you willing to pay more for the shoe.

[andyt]

Lemmy Lemmy:

kilroy kilroy:

Of course costs are a segment of demand. How could it be otherwise?

Because they aren't. At all. In any way. When you go to buy shoes, your demand for shoes comes from how much you like them, not how much it cost the company to make them. If the cost of rubber went, that doesn't make you willing to pay more for the shoe.

except that you need shoes to live in Canada, so if rubber is up all shoes with rubber in them will get more expensive, yet people still need to buy shoes. Guess you can go for some Guccis with leather soles, but that may not be a solution either.