Cascade tax can create higher tax revenues compared to a single stage tax, because tax is imposed on top of tax.
For example, a government levies a 2% cascade tax on all goods produced and distributed. A company sells $1,000 worth of stone for a tax-inclusive price of $1,020 ($1000 + 2% cascade tax) to an artist. The artist makes a sculpture out of the stone and wants to make $2,000 when he sells it to an art dealer, so he adds this figure to what he paid for the stone to get $3,020, and then adds on the cascade tax to bring the total to get $3,080 ($3020 + 2%). The art dealer wants to make $5,000 for the sculpture, adding this to $3,080 for a pre-tax $8,080. She then adds the 2% cascade tax for a total price of $8,242. The government collected taxes of $242, which is actually a rate of 3.025% ($242/$8,000).
Investment dictionary. Academic. 2012.
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