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Consumer models and the common influence of increasing VAT and decreasing wedges

Ciuiu, Daniel (2015): Consumer models and the common influence of increasing VAT and decreasing wedges. Published in: Proceedings of The 13-th Workshop of Department of Mathematics and Computer Science, Technical University of Civil Engineering, Bucharest, May 23 2015. , Vol. 1, No. 1 (September 2015): pp. 15-19.

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In this paper we study the common impact of increasing VAT and decreasing incomes in consumer models. The considered models are linear ones (see [3], [4] and [8]). It is in fact the extension of the study [2], where there was performed the study of the impact of only one of the mentioned government decision (increasing VAT). We have already noticed that applying the simple three rule is not appropriate. But the problems that arise come from the common impact. It is possible that if it is applied only the decreasing of the wedges (25%) , the incomes from selling products decreases by the ratio b , if we apply only increasing VAT the income decreases by the ratio a (we have obtained in [2] a = 4.01653 ignoring the dependence of quantity on wedges), but if there are applied both the income decreases by the ratio g ¹1−(1−a )(1−b ) . This is the general case, and the explanation of such phenomenon comes from analogous reasons as in [2]: the total income is the sold quantity multiplied by the price, hence we have not linearity. Another explanation comes from the least squares method: in the obtained linear system for estimating the three parameters (intercept, coefficient of prices and coefficient of wedges) both variables influence the result.

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