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. A. 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. B. Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.
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. A. 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. B. Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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.
A. Use a tax incidence (or tax shifting) supply and
B. 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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