Friday, July 15, 2011

I love this

There's a great post on the Freakonomics blog about tax holidays (specifically in Texas), and I'm just gonna go ahead and post it in its entirety (it's short).
The 13-year-old grandson and his 11-year-old sister are discussing the Texas tax holiday—for one weekend in August there will be no sales tax on school-related items. The grandson says stores will cut prices to compete for customers.  The granddaughter, already an inveterate shopper, says no: With the tax holiday there will be so many customers that the stores will be able raise prices.
While prices won’t rise compared to the previous weekend, the granddaughter seems to understand that an inelastic demand means the incidence of (gain from) the tax cut will be on the sellers—the customers are unlikely to get much of a bargain. A subtle, Texas-style subsidy to business; but one that even an 11-year-old can see through!
Good stuff, and congrats to the little girl for appreciating the intricacies of government policy at such a young age. I dare say she's earned the right to vote more than many adults in this country. Next time on "Are you smarter than a 5th grader?", we'll take a look at alcohol licensing idiocy in Minnesota. Stay tuned...


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