Excise Tax vs Sales Tax
Excise Tax and Sales Tax are related concepts in AP Economics that students often mix up. In short: excise tax is an excise tax is a tax levied on the production or sale of a specific good or service. Meanwhile, sales tax is a sales tax is a tax on goods and services collected at the point of sale as a percentage of the price. Here is how they compare side by side.
An excise tax is a tax levied on the production or sale of a specific good or service.
Excise taxes are typically applied to goods with negative externalities, like cigarettes or alcohol, to discourage consumption and raise revenue. They shift the supply curve upward by the amount of the tax.
A sales tax is a tax on goods and services collected at the point of sale as a percentage of the price.
It is generally considered regressive because lower-income households spend a larger share of their income on taxed consumption. It is a major revenue source for U.S. state and local governments.
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