Using Empirical Point Elasticities to Teach Tax Incidence

Abstract

Using point elasticities rather than using either arc elasticities or slopes of demand and supply curves provides the best method for teaching students about the economic impacts of excise taxes. Not only does a point-elasticity approach simplify theoretical analysis of tax impacts, but it also allows instructors to take advantage of publicly available empirical estimates of demand and supply elasticities to show students how theoretical results can be applied to real-world tax policy issues. To illustrate these advantages, the authors use several available estimates of point elasticities of demand and supply of raw sugar to calculate the economic impacts of a recently proposed penny-per-pound tax on raw cane sugar grown in the Florida Everglades.

Key Words:

• point elasticity
• tax incidence

Additional information

Notes on contributors

Christopher R. Thomas

John R. Swinton is an assistant professor (e-mail: [email protected]) and Christopher R. Thomas is an associate professor in the Department of Economics at the University of South Florida. The authors wish to thank John Swinton, Sr., and three anonymous referees for numerous helpful comments that substantially improved this article.