Dear all,
I have a firm that is taxed on its volume of product produced, (price - tax)*Output. This tax is pass-through directly in the selling price as the firm is profit maximizing. Is there a way not to have this pass through? Such that the producer bears the tax and not the consumer indirectly?
Thank you
Can you elaborate what you are trying to do exactly and what the economic logic is?
Yes. In some countries, producers are obliged to pay for a recycling fee per amount of product produced. This recycling fee covers the cost of a recycling firm. This cost born by the producer should not be passed to the consumers, else the consumers would be the one bearing the real cost of recycling.
This recycling fee is mandatory and incentivize the firm to increase the recyclability of its goods, and design more environmental friendly goods. The fee goes in the government’s budget that owns the recycling firm.
Though, in my model, in the profit maximisation, this fee is kind of an excise tax on the volume of product produced. Hence, when setting the price, the firm incorporate this recycling cost in the price charged to household, which I do not want …
Is it clear enough now @jpfeifer ?
So it’s about tax incidence. But we know from economic theory that unless the demand elasticity is zero, part of the tax incidence will fall on consumers. It would be irrational for firms to not pass on some of the tax.
Ok ok makes sense. That was my first pick. I don’t see how a firm would not pass through part of this extra cost it is facing. Thanks !