Question

Suppose you could impose a perfectly enforceable carbon tax either upstream onproducers (e.g., Exxon pays a tax when it extracts petroleum) or downstream onconsumers (e.g., consumers pay the tax when they fill up their car with gasoline).

If the tax is imposed upstream versus downstream, economic theory predicts that this will lead to the same allocation of abatement activity, but it will change who bears the burden (incidence).

a. True
b. False

Answer 1

It is FALSE that If the tax is imposed upstream versus downstream, economic theory predicts that this will lead to the same allocation of abatement activity, but it will change who bears the burden (incidence).

Step-by-step explanation:

When tax is imposed upstream versus downstream the person that bears the burden will not change because at both incidence it is the consumer(Downstream) that will cover the tax still.

Upstream refers to points in production that originate early on in the processes. Often applied to the oil and gas industry, upstream activities include exploration, drilling, and extraction.

The downstream sector is the refining of petroleum crude oil and the processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from crude oil and natural gas.