In 1980s the government imposed a sales tax on purchase of luxury cars. ?

Question

The revenue collected from the tax equals the tax rate multiplied by total spending on such cars. There have been suggestions that the government could earn more tax revenue by increasing the tax rate on luxury cars. Would such an increase necessarily rays tax revenue? Explain.

Answer 1

any tax increase will increase revenue, however since the 80's and the dot.com era, we have seen a huge jump in the millionaires/billionaires.  these people love to spend money on flashy toys like 200,000 dollar cars, million dollar homes, etc.  plus the coast of say a rolls royce, porche, ferrari have all dramatically increased since the 80's the tax on them are now way higher

Answer 2

If the elasticity of demand on luxury cars is less than 1, tax receipts would increase with a increase in the tax rate.