a. In the opening scene of the classic Eddie Murphy comedy Beverly Hills Cop, Axel Foley, a Detroit police officer, is stopping a cigarette smuggling ring. Of course, smugglers don’t pay the tax when the cigarettes cross state lines. Which way do you suspect the smugglers were moving the cigarettes, based on economic theory? From the high-tax North to the low cost South, or vice versa?
b. In our discussion of taxation, we’ve acted as if it were effortless to pass and enforce tax laws. But, of course, law enforcement officials including the Internal Revenue Service put a lot of effort into enforcing tax laws. Let’s think for a moment about what kind of taxes are easiest to collect, just based on the basic ideas we’ve covered. Who will make the most effort to escape a tax: the party who is elastic or the party who is inelastic?