Without pointing out any government about their taxing policies I just going to elaborate that what are the basic consequences of Taxation.
There are the basic terms in taxation theory which are Tax burden, Death-weight loss and laffer curve.
Tax Burden this tells whom so ever the tax is being imposed either on supplier or on consumer the tax burden will be shared by the both consumer as well as producer (except the extreme cases). It can be any ratio but it’s can’t be the whole burden on consumer or all on producer (in case of normal goods). The tax burden sharing ratio depends on the elasticity/ responsiveness of demand and supply respectively.
Now, before exploring the concepts of death-weight loss and the laffer curve, we must be knowing about the tax revenue. Tax revenue is revenue earned by the government on imposition of tax this is equal to the tax percentage imposed times the quantity of good or service being traded, In simpler words tax revenue is the income of government by which tax is being imposed.
Death-weight loss One of the main effect of government imposing the tax is Death-weight loss. Now what is death-weight loss, when government imposes tax on a good or service market is unable to trade on the it’s optimum Level or we can say at the equilibrium level of quantity, Because of the response of the member it is imposed on.
By Response of member it is imposed on, I mean
Consumer, If the tax have been initially imposed on Consumer it will raise the burden on the pocket of consumer so he will demand less on the same price levels.
Producer, If the tax have been initially imposed on Producer it will raise it cost of good or service being produced so he will supply less on the given price level.
Because of these reasons Market is not being able to trade on the optimum level hence facing death-weight loss. This loss is equal to the tax imposed times the quantity loosed out of trade.
An increase in tax rate will increase the death-weight loss. Now, some people thinks the subsidy will not cause the Death-weight loss but it will do something opposite to it, But we forget a basic rule that subsidy how and so will be financed by some kind of Tax and as we know Tax causes Death-weight loss.
Now Laffer Curve, it has been introduced by the Economist Arthur Laffer, This curve shows the relation between the tax rate and the tax revenue earned by the Government. Taking Tax rate on x-axis and tax revenue at y-axis firstly the tax revenue increases with the increase in tax rate but after some stage it declines. So that doesn’t means a government imposing tax on a good or service will increase it’s tax revenue it can show a decrease too.