Introduction
The debate as to whether imposing taxes to goods and services is healthy is well-documented and argued among economists. Economic efficiency seeks to understand how nations make maximum use of the available economic resources. Traditional, some of the economic resources included labor, capital and land. Among various economies, the economy’s efficient operation is a major issue for discussion. There is a believe by the post-Keynesians that discretionary policies control the economy. This opinion is not taken well by classical economists who are keen to see the economy dictate its operations. For the purposes of this paper, my position is that taxes tend to distort the economy’s efficient operation. Because they form part of the fiscal policies, taxes affect consumption by citizens depending on the economy of the country. As such, taxes should be abolished.
Discussion
In most cases, customers are forced to take harsh measures to mitigate the difficult economic situations they find themselves in. Taxes such as the income tax directly affect a person’s disposable income. When this is the case, potential consumers are forced to prepare a preference scale, giving the essential products a priority over other products. This affects the luxury goods as people will not have cash to buy them. In giffen goods, for instance, more investment needs to be given to the inferior necessities. In case there are no taxes on goods and services, the demand of goods would be determined without taking into account discretionary policies. The operation of the economy would thereby be efficient and free (Vermeend et al. 82).
Taxation has a direct impact on the quantity of goods supplied to the economy. Taxation increases the cost of goods. Imposing taxes on raw materials means that the consumer will carry the burden (Torgler et al. 52). Such responsibility is spread down by consumers through an increase in price. In particular, there will be a decrease in the quantity of goods supplied to the market. Commodity suppliers and sellers will be asked to carry the burden upon taxing raw materials. Whenever the quantity of goods supplied is inelastic and the demand elastic, taxing suppliers directly affects the quantity of goods they can supply in the market (Carroll et al. 36). The commodity’s cost of supply is increased by taxation, meaning suppliers will find it difficult to supply goods. To mitigate these high costs, suppliers increase their prices because they are controlled by elasticity of demand. In an economy where buyers have options to choose from, the buyers may shift to commodities that have not been affected by an increase in price. This will force sellers to switch their production to the alternative commodities that have not been affected by tax. Eventually, this affects the economy’s total production in a negative way.
Works Cited
Berube, Warren J, and Camron N. Pinto. Taxation, Tax Policies & Income Taxes. New York: Nova Science Publishers, 2009. Print.
Carroll, Richard J. Congressional Quarterly's Desk Reference on the Economy. Washington, D.C: CQ Press, 2000. Print.
Torgler, Benno, and Friedrich Schneider. The Impact of Tax Morale and Institutional Quality on the Shadow Economy. Munich: CESifo, 2007. Print.
Vermeend, W A, Frederick. Ploeg, and Jan W. Timmer. Taxes and the Economy: A Survey on the Impact of Taxes on Growth, Employment, Investment, Consumption and the Environment. Cheltenham, UK: Edward Elgar, 2008. Print.
