**6.1. Short- and long-term changing demand elasticity**

Existence of substitution possibility is the primary element affecting demand elasticity. Existence of close substitutes for some goods increases price elasticity of the demand in question. As seen in **Figure 2**, since development of substitution opportunities take time, while in short term, price elasticity of demand for many products is low, elasticity may increase in the long term [22]. Durable consumer goods have a different structure compared to other goods in short and long term elasticity. Despite the fact that elasticity differences are observed between terms in these goods as well, price elasticity of demand is more elastic for these goods in the short term, while it weakens in the long term [23].

At this point, the most basic example is the price elasticity of demand for oil changing in short and long terms against OPEC cartel shock in 1970s. Sudden price increase experienced in the so-called period was received with highly inelastic price elasticity of demand at a level that

**Figure 2.** Changing demand elasticity.

In short, when Ramsey's suggestion is applied, low-incomers, who relatively allocate majority of their income to necessity goods, have to face a high tax burden. Therefore, a conflict between the goals of decreasing the efficiency cost of tax and equitable tax emerges. Ramsey rule puts forward what needs to be done when efficiency purpose is desired to be pursued.

As a result in optimal commodity taxation, Ramsey's analysis requires a careful analysis of: the constraints on taxation; the elasticities of demand and supply; and the structure of the

Criticisms done within the context of the basic assumptions of Ramsey taxes' inverse elasticity rule become more serious especially on the topic of income redistribution. Inverse elasticity rule creates a conclusion in line with efficiency but to the detriment of equality by suggesting taxation of necessity goods, which occupy a heavy place in the consumption basket of lower income groups, at a high rate and goods appealing to higher income groups at lower rate

Besides the assumptions in inverse elasticity rule mentioned above that are subject to criticisms, another topic to be emphasized is whether demand elasticity varies within the frame-

A change that may occur in demand elasticity of luxury and necessity goods may build a fairer structure for the inverse elasticity rule in terms of income distribution, and the abovementioned taxes criticized in practice within the context of enabling justice in income distribution, which is among the main functions of the state, may be reassessed as part of changing demand elasticity. Under this assumption, in this part, changes in elasticity of luxury and necessity goods that could be created by macrovariables and microvariables within the chang-

Existence of substitution possibility is the primary element affecting demand elasticity. Existence of close substitutes for some goods increases price elasticity of the demand in question. As seen in **Figure 2**, since development of substitution opportunities take time, while in short term, price elasticity of demand for many products is low, elasticity may increase in the long term [22]. Durable consumer goods have a different structure compared to other goods in short and long term elasticity. Despite the fact that elasticity differences are observed between terms in these goods as well, price elasticity of demand is more elastic for these

At this point, the most basic example is the price elasticity of demand for oil changing in short and long terms against OPEC cartel shock in 1970s. Sudden price increase experienced in the so-called period was received with highly inelastic price elasticity of demand at a level that

Goal of justice is not within this rule's field of interest [18].

work of macroeconomic and microeconomic variables.

**6.1. Short- and long-term changing demand elasticity**

goods in the short term, while it weakens in the long term [23].

ing economic conjuncture will be addressed.

**6. Changing demand elasticities**

depending on demand elasticity.

economy [21].

130 Taxes and Taxation Trends

did not cause a change in the amount demanded in the short term; however, fuel efficient solutions with the technology developed in the long term allowed price elasticity of demand to increase.

In this way, short and long term price elasticity of demand for products with substitutes that need time to be developed may differ. Because of this reason, although goods with low price elasticity of demand are advised to be taxed at higher rates in Ramsey taxes within the tax structure that will not damage efficiency, in the long term, price elasticity of demand for many goods including necessity goods increases. In such a case, since tax rates will decline as part of increased elasticity, it will be difficult to achieve the budget revenue planned in the beginning without negatively affecting efficiency.
