Question

Raising gas taxes to finance infrastructure is​ "politically tricky" because​ _______.

Answer 1

Answer:

D. a rise in the gas tax makes the supply of gasoline more elastic so most of the rise in the gas tax is paid primarily by​ consumers, which jeopardizes the​ re-election of politicians

Explanation:

First of all, the demand for gasoline products is normally deemed as relatively inelastic, which means that the percent of change in consumer demand is lower than the percent of change in the price of goods.

If the gas tax and thus overall gas price becomes higher, gas supply will become slightly more elastic (not to a great extent, as gas is a limited resource).

Tax inference is a term implying the distribution of the tax burden between the supplier and consumer. In this case, we have a similar demand and supply elasticity. A general rule is that if we have an elastic supply, but inelastic demand, the tax is almost entirely paid by the consumer.

Even though this example shows a similar level of elasticity for both supply and demand, the bigger share of the tax burden still goes to the consumer, as the supply is still more elastic than the demand.

Therefore, imposing such taxes (no matter the reason), can provoke controversy in public discourse and create instability to the position of the politicians who made such decisions.