The government has introduced an excise duty of 10 percent on mealie meal. This essentially means the price of mealie meal, an essential item in most households, has increased by 10 percent. As the chief economist responsible for managing a social protection programme, you have been asked to make a proposal on how you can minimise the adverse effect of the excise duty on low income households. Using your knowledge of compensating or equivalent variation, show how you would ensure that these households are protected from such a measure. Would Lump sum taxes be better than unit (ad valorem or percentage) taxes in this context

The government has introduced an excise duty of 10 percent on mealie meal. This essentially means the price of mealie meal, an essential item in most households, has increased by 10 percent. As the chief economist responsible for managing a social protection programme, you have been asked to make a proposal on how you can minimise the adverse effect of the excise duty on low income households. Using your knowledge of compensating or equivalent variation, show how you would ensure that these households are protected from such a measure. Would Lump sum taxes be better than unit (ad valorem or percentage) taxes in this context

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter20: Elasticity: Demand And Supply

Section: Chapter Questions

Problem 10E

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