The goal is to maximize government revenue while also not creating a negative economic condition through low consumer spending. Any tax levied on the public shouldn’t create a recession. Therefore if the income effect is great in an area it is greater than the substitution effect. Government officials should rely on revenue from sales tax. This is because a great income effect would mean that consumer spending would be more likely to decrease based on a decrease in income. On the other hand if the substitution effect is greater in said area then government would want to rely on income tax. This is because consumers in this situation would be more sensitive to these specific price changes. The overall goal would be to maximize tax revenue while promoting more demand from
The goal is to maximize government revenue while also not creating a negative economic condition through low consumer spending. Any tax levied on the public shouldn’t create a recession. Therefore if the income effect is great in an area it is greater than the substitution effect. Government officials should rely on revenue from sales tax. This is because a great income effect would mean that consumer spending would be more likely to decrease based on a decrease in income. On the other hand if the substitution effect is greater in said area then government would want to rely on income tax. This is because consumers in this situation would be more sensitive to these specific price changes. The overall goal would be to maximize tax revenue while promoting more demand from