Are Commodity Price Increases Equivalent to Tax Increases?
Abstract
In this chapter we argue that price changes alone are not sufficient to determine the equivalence between price and tax changes. The nature of the disturbances leading to the price change is also an important piece of information. If the price change is generated by demand shifts, one gets a very different outlook than when the price changes are generated by supply shifts. In some cases, the demand/supply shifts are quite bullish and in others they are quite bearish. For example, the increase in the relative price of oil and other commodities early in the new millennium had a bearish slant if interpreted as a supply shift and quite a bullish if interpreted as a demand ...
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