Why does indirect taxation cause cost push inflation?

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Rebeccacrossxx
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I can’t find the answer anywhere on google 😤
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adamdubs
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higher indirect taxes -> higher employment costs for firms -> lower SRAS = cost push inflation
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Rebeccacrossxx
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(Original post by adam_winterb)
higher indirect taxes -> higher employment costs for firms -> lower SRAS = cost push inflation
Why do employment costs rise?
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adamdubs
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(Original post by Rebeccacrossxx)
Why do employment costs rise?
Indirect tax on a good means that a producer has to pay tax per unit of good/service they produce. So in theory, the good/service costs more to produce (depending on price elasticity of demand and supply).

This means higher costs for firms, causing SRAS to shift left/up.
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username3515912
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A indirect tax is a tax on spending such as VAT and excise duty.An increase in these types of taxes increases costs to producers. For example, if VAT was higher than 20% then prices of raw materials will rise causing the cost of production to also rise.Producer then increase their prices in order to maintain there profit margin and make a ‘healthy’ profit, thus causing cost push inflation.


I wouldn’t use the other poster’ response because I don’t think it’s applicable towards an indirect tax. He should of said it costs more to obtain raw materials for producers not having to pay tax on per unit that they produce
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