Tax revenue is a rectangle
Use the after-tax quantity. The rectangle must use the number of units that still trade after the tax. Using the original quantity overstates revenue. Revenue equals tax per unit times units still traded. If a $4 tax reduces quantity to 800, revenue is $3,200. Using the original pre-tax quantity overstates revenue because some trades disappear. […]
The statutory side does not control the economic burden
Market prices adjust to the same after-tax outcome. A $4 tax collected from sellers shifts supply upward by $4: sellers require a buyer price $4 above the amount they keep. A $4 tax collected from buyers shifts demand downward by $4: at each quantity, buyers offer sellers $4 less than the total amount they pay. […]
