The Romanian government has identified a new source of revenue: taxing witches. Read this short BBC news story for some details.
Tax policy is also a way to regulate religion. Imposing taxes on witches, assuming that they pay them, will raise the cost of their operations. Basic supply and demand analysis from introductory economics suggests that this negative supply shock should lead to an increase in the prices of witches' services and a decline in the quantity of witches' services traded in the market. Of course, some witches could decide to not pay and move their services underground. Doing so is costly as well, so again the prediction is a drop in witches' services traded, all else equal. Whether reducing the consumption of witches' services is part of the government's motive is not addressed in the story.
But others see a positive angle to the development. By taxing the witches, the government is implicitly recognizing them as being engaged in a legitimate business activity. Should the government's earlier classification reduce any stigma associated with paying a witch, then this acts to decrease the cost of the the witch's services. This effect would obviously work in the opposite direction of the supply shock mentioned in the earlier paragraph.
Which effect will dominate? Will the quantity of witches' services sold in the market go up or down?
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I think putting a tax on the witches’ services would be a good thing for their practice. Since they don’t charge a lot for their services, they wouldn’t be taxed very much anyways. Also, legalizing these magical services might give the witches more credibility. We discussed in lecture how people associate a higher price with a more quality product. Usually, the burden of tax falls on the supplier as well as the consumer. Having people pay a higher price for witches’ service might make them value, and demand, the powers more. Now that the government recognizes the magical services as a legitimate business, it might cause the demand for services to rise.
ReplyDeleteThe article as tells the story of Ms. Buzea who was imprisoned for her curses. Now that the government recognizes witchcraft as a taxable business, I think witches are less likely to be prosecuted for practicing witchcraft. Because of these factors, I believe the imposed tax would cause an increase in demand for services.
Nicole Lopez
Thanks Nicole. You may be right. I wonder if anyone could collect data on this to find out...
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