ABSTRACT
This chapter discusses the impact of taxation on market behaviors, including how the imposition of taxes influences consumer demand in general, and tax avoidance behavior, in particular. It presents a background discussion of the household decision process and market behaviors. The chapter examines some of the important issues regarding the impact of taxation on efficiency and equity, within a consumption framework. It explores a review of the literature, including some of the major economic challenges faced by researchers in estimating the effect of taxation on consumer behaviors. The chapter reviews how consumers adjust their behaviors to taxation to include tax avoidance schemes. According to traditional microeconomic theory, household behavior is understood as the theory of consumer demand for commodities, which attempts to derive some logical propositions about the way households behave in response to changes in budget constraints. The new tax responsiveness literature looks beyond labor supply effects to include the effect of taxation on total reported taxable income.
