Incidence Of Taxation

Incidence Of Taxation

Incidence of Taxation, the final resting-place of a tax burden, as distinct from its 'impact', i.e. the first place where it is imposed. In time a tax may percolate through many parts of the economy. The burden of a tax will tend to be shifted by those who pay it initially, the extent depending on the elasticities of the demand and supply for goods and services and factors of production, i.e. on the degree of imperfection in these markets. Manufacturers will try to shift it to retailers and consumers, who may give up smoking or strike for more pay and pass it back to other manufacturers. Manufacturers may try to reduce the prices they pay to labour and for other factors and thus pass the tax back. If wages are reduced in this way, wage-earners may spend less, and prices and sales revenues fall; the tax incidence is thus shifted onwards by consumers. Thus in the end the people who contribute to the resources which the Government acquires through taxation may be very different from those on whom the taxes were apparently imposed. Studies of the ways in which taxes are shifted help in formulating tax policy.

Income, broadly, the receipts of individuals, companies or government s over a stated period, derived from the earnings of individuals or from the ownership of factors of production. Strictly, income and money receipts are not the same. In economics income is closely fled to production, the citation of wealth in the form of real goods and services. When priced, the value of production measures money income. This is not necessarily identical with money receipts, which represent the exchange of one kind of asset, a claim on wealth, for another, money, which is a general claim on wealth. A speculative builder creates wealth (income) with every day's work on a house: when he finally sells the house for money he is merely exchanging assets.

These distinctions are fundamental in economics however much they may be blurred in everyday usage. Thus for the purpose of economic measurement it is sometimes necessary to impute a notional income where there is no receipt of money (or goods or services). An example is the value of an owner-occupier's interest in his property, a resource that is currently producing an annual flow of income in the form of house-mom. More generally personal incomes take the form of and are measured by wages , salaries, interest, profits, dividends and rent: company income accumulates as retained earnings in the form of reserves and undistributed profits: Government income comes from the ownership of property. Tax receipts represent transfers from the private sector and are not regarded as income. 200

Next Step: Economy - World Economy

Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

Economics is in the last resort a technique of thinking. The reader will therefore need to make an intellectual effort, more substantial for some web entries than for others, to get the most interest and value out of this website.