Why is the concept of net indirect tax not applicable in two sector economy?
Dear student,
Indirect tax can be defined as a type of tax where the incidence and impact of taxation does not fall on the same entity. Net Indirect Taxes is the difference between indirect tax and subsidy. But in a two sector economy the incidence and impact fall on same entity. Hence the concept of indirect tax has no relevance. As in two sector economy, there is only firm and household. And indirect taxes are related with government. When there is no government, then there is no relevance of indirect tax in two sector economy.
Regards
Indirect tax can be defined as a type of tax where the incidence and impact of taxation does not fall on the same entity. Net Indirect Taxes is the difference between indirect tax and subsidy. But in a two sector economy the incidence and impact fall on same entity. Hence the concept of indirect tax has no relevance. As in two sector economy, there is only firm and household. And indirect taxes are related with government. When there is no government, then there is no relevance of indirect tax in two sector economy.
Regards