Thursday, February 28, 2013

Greece Oil Taxes Increase by 450%

The New York Times reports that Greece has increased the tax on heating oil by 450%, and this has resulted in a significant decrease in the quantity demanded for heating oil, as predicted using the supply and demand model.  Also notice that while new tax revenues have increased by $63 million, the overall amount of tax revenue has decreased by about $190 million.  As I show in Prin. of Microeconomics, large per unit taxes can actually result in a loss of government revenue but large per unit taxes will always result in a large deadweight losses.  This seems to be an unfortunate example of just that case.

No comments: