Tax shifting

Tax shifting occurs when the burden of a tax is passed on to someone else. For example, an increase in a sales tax may simply result in customers paying higher prices - without affecting stores at all.

• An example of this shifting took place when the government placed a sales tax on luxury goods in 1991, assuming the rich could afford to pay the tax and would not change their spending habits. Unfortunately, demand for some luxury items (highly elastic goods/services) dropped and industries such as personal aircraft manufacturing and boat building suffered, causing layoffs in some sectors.