Changes in Taxation Level
The effect of a change in taxation level on total tax revenue depends on the good being investigated, and in particular on its price elasticity of demand. Where goods have a low elasticity of demand (they are price inelastic), an increase in tax or duty will lead to a small decrease in demand—not enough to offset the higher tax raised from each unit. Overall tax revenue will therefore rise. Conversely, for goods which are price elastic, an increase in tax rate or duty would lead to a fall in tax revenue.
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