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1985•National Tax JournalRequires access

TAX INCIDENCE, INDIRECT TAXES, AND TRANSFERS

Edgar K. Browning

Open publisher page 30 citations

Abstract

This paper suggests that it is incorrect to allocate indirect output taxes, such as general sales taxes, to consumption in a tax incidence analysis. Using a simple differential incidence model, it is shown that allocating such taxes to consumption is inconsistent with widely held methodological tenets of tax incidence analysis, and also in practice has produced errors and logical inconsistencies. In contrast, the analysis suggests that allocation of indirect output taxes to factor earnings avoids these problems.

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What this paper is about

This paper suggests that it is incorrect to allocate indirect output taxes, such as general sales taxes, to consumption in a tax incidence analysis. Using a simple differential incidence model, it is shown that allocating such taxes to consumption is inconsistent with widely held methodological tenets of tax incidence analysis, and also in practice has produced errors and logical inconsistencies. In contrast, the analysis suggests that allocation of indirect output taxes to factor earnings avoids these problems.

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OpenAlex reports 30 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

This paper suggests that it is incorrect to allocate indirect output taxes, such as general sales taxes, to consumption in a tax incidence analysis. Using a simple differential incidence model, it is shown that allocating such taxes to consumption is inconsistent with widely held methodological tenets of tax incidence analysis, and also in practice has produced errors and logical inconsistencies. In contrast, the analysis suggests that allocation of indirect output taxes to factor earnings avoids these problems.

Key concepts: Tax incidence, Economics, Tax deferral, Consumption (sociology), Earnings, Differential (mechanical device), Indirect tax, Microeconomics

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