Over time we have been covering specific issues with how income tax and GST influence economic activity. This post was supposed to describe how an increase in GST with a proportional decrease in a flat income tax would lead to no change in consumer activity. This required the assumption that the incidence of tax on the household in both cases was equal, which will not be true.
Next we discussed the incidence of income tax in this post, which allowed us to say that some of the burden of the tax falls on labour, but some also falls on the firms that employ workers. The next step is to look at the incidence associated with a goods and services tax, and some of the inefficiencies that this issue causes for this tax type. Read more