A city’s hotel tax used to be 20%. Today it is 12%. Total hotel tax revenue today is greater at a 12% tax than hotel tax revenue used to be at the 20% rate. Use a tax incidence (or tax shifting) supply and demand diagram to show both higher total tax revenue at the 12% tax rate, and lower total tax revenue at the 20% tax rate. Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.
A city’s hotel tax used to be 20%. Today it is 12%. Total hotel tax revenue today is greater at a 12% tax than hotel tax revenue used to be at the 20% rate. Use a tax incidence (or tax shifting) supply and demand diagram to show both higher total tax revenue at the 12% tax rate, and lower total tax revenue at the 20% tax rate. Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.
Chapter6: Elasticities
Section: Chapter Questions
Problem 16P
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A city’s hotel tax used to be 20%. Today it is 12%. Total hotel tax revenue today is greater at a 12% tax than hotel tax revenue used to be at the 20% rate.
Use a tax incidence (or tax shifting) supply and
Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.
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