Question

Please read below and then help me with the follow up questions. Thank you.

Discussion:

Government is known to utilize a product's elasticity measures to set taxes and subsidies. Use this information to set policy on one of the following products: tobacco products, petroleum products, agriculture products, or medical products according to your goal. Research the government's tax/subsidy policy in these areas and any objectives of the tax policy. State your goal, your prescribed action, and why you believe it will work using the information you found.

Response:

The product I would choose to create a policy on is petroleum, due to it’s relative inelasticity and its place as a normal good. My goal in placing taxes on petroleum would be to subsidize clean energy initiatives and the production and purchase of goods that play into that goal. Regarding the inelasticity of petroleum, due to many Americans’ use of motor vehicles personally as well as its use in transporting other goods and relatively few alternatives for plastics used in production of countless goods, a small tax placed on petroleum would not trigger a significant change in the quantity demanded. Some individuals and businesses may try to cut their demand by a little, but their ability to make large rapid changes in their consumption of petroleum products is very limited due to their investment in petroleum powered vehicles and the limited number of alternatives. Outside of major cities public transportation is generally poor or unavailable and many businesses do not have a better alternative than to continue using trucks to transport goods.

Looking at my own state, California, and the taxes put in place there is already a somewhat similar initiative. Instead of money going to subsidize clean energy and fuel alternatives, it is going into road repair which research has shown can lower fuel and repair costs for many Californians. By fixing rough roads passenger vehicles get better fuel mileage, regardless of their fuel type, and drivers spend less on repairs, possibly leading to overall savings for consumers. By increasing fuel mileage, whether it be petroleum or an alternative such as electricity, it also lowers emissions and reduces environmental impact.

Questions:

So, what percentage of tax changes you do expect here and why? Could you add some examples ( sometimes from a different other country), that shows the gains and loses related to such tax applications?

Could someone help me out here in 200 words or so? Thank you.

Answer 1

here the tax has been put on petroleum to subsidise clean energy initiative. as petroleum is considered as a normal good here with very limited substitutability its harder for people to find a better ulternative at its place. here the tax rate imposed should not be high because its a necessery good for the people as well.the tax amount imposed on petroleum should be just enough to reduce the use of petroleum and the tax should be used to fund other clean energy to replace petroleum so that emission will be reduced and airpollution can be reduced. as every tax has both a good and a bad side to it, petroleum tax will also be responsible for gains and losses of the society. for example in INDIA different states impose different tax rate on petroleum products taking into consideration the amount of pollution they need to reduce. in maharastra its almost 39% and in mizoram its 18% so the tax rate depends on the aim that the state government has and the elasticity of the product. the tax collected is used for various perposes like road construction, forestration and other environment friendly works which will help to eliminate carbon emission. but the loss is actually for the public to bear. the public has to pay a huge amount of tax and as there is very less alternative available people cannot avoid using petroleum product on a daily basis. here there is a chance that if people cannot reduce the use of petroleum then the demand for other commodity will decline as they have to pay a huge amount for petroleum. so there are chances that it might harm the demand of other markets and will not be able to reduce pollution if people do not stop using petroleum a lot.