The state of Tennessee introduces a tax on movie tickets of 50 cents to be paid by theatre owners. Following the tax, the price of a movie ticket…
September 3, 2020
(Calculating the rate of return) A friend promises to pay you $600 two years from now if you loan him $500 today. What interest rate is your friend
September 3, 2020

1.    The state of Tennessee introduces a tax on movie tickets of 50 cents to be paid by theatre owners. Following the tax, the price of a movie ticket increases 30 cents.

a.    Using only the information above, characterize the statutory incidence of the tax.

b.    Using only the information above, characterize the economic incidence of the tax.

c.    Suppose you had unlimited access to data. How could you improve upon your estimate of the economic incidence from part B? What data would you collect? What empirical technique would you utilize? Be specific.

Suppose that instead of the state of Tennessee, the federal government of the United States decided to impose a 50 cent tax on movie tickets.

d.    How would the economic incidence of a federal tax likely compare to that of a tax imposed solely in the state of Tennessee?

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