Tax incidence

The tax incidence is the substantive tax burden that results from the formal tax burden by considering shifting operations. Examines this is in the control effect doctrine.

Overview

Only by identifying the taxation burden events, a discussion of the tax justice take place. The attempt to create an optimal control system is pointless as long as the stress effects of different tax types are not known.

Therefore, the doctrine of the incidence of one of the oldest and most important research areas of control science is the core of the teaching is the distinction between formal and substantive tax burden. In the formal tax burden, also called tax impetus is to any monies which are paid by the taxpayer to the tax authorities. The substantive tax burden (incidence) describes those welfare losses that remain after completion of all shifting operations and distort the taxpayer or any other person. Under distortion is defined as the additional burden of taxation, which is triggered by the fact that the taxpayers try to reduce their tax burden through changes in behavior.

The total number of loads and the additional loads caused by the control corresponds to the substantive tax burden or tax incidence. With the tax incidence the personal distribution of that welfare losses to be measured, the set after completion of all shifting operations and which may significantly differ from the formal tax burden.

Formal and substantive tax burden thus differ because on the one hand shifting operations take place, and because the taxation on the other hand causes distortion. The tax incidence does not depend on whether the tax is levied on buyers or sellers, but it depends on the elasticity of demand and supply. The tax burden tends to be borne by the participants whose elasticities are low and therefore less easily able to avoid exposure to changes in behavior.

In a closed economic model the government uses the assumed tax amounts for the purchase of goods or for the payment of transfers to households and businesses. Tax revenues are consistent with the government spending. Consequently, not only the tax payments should be taken into account, but also at the same time associated with the government spending benefits the private profits in the analysis. This is called budget incidence.

If taxation is desired, the poll tax without sales tax should eliminate the distortion loss due to reducing consumption, since the taxpayer on his income only dissipates a certain fixed amount, without then being charged again with his consumption. A poll tax but is regarded as socially unjust, because it allows no distinction based on the performance.

Definition

In the following, the incidence is defined precisely using a simple macroeconomic model:

In the considered model economy consumers who are identified by the numbers h = 1 .. H live. The term " consumer" refers not only to households as well as individuals. In an imaginary state without taxes each consumer chooses according to his financial ability a particular bundle of goods and thereby achieved the benefits uh. After introduction of taxes each consumer pays the tax amount to the tax authorities Th. The tax amount can represent any payment that has been recorded on the basis of an arbitrarily chosen control system in the new equilibrium. Formal and substantive tax burden will now be characterized by comparing the fictional state taxes and the state with taxes. These differ superficially by the number amounts theory but it is important that the demand of the consumer goods bundles are different in the two states. Typically, a consumer is forced by taxation to a renunciation of consumption and its utility decreases by the amount measured in monetary units Delta uh. This allows the procedural and substantive tax burden conceptually clear grasp:

The formal tax burden or load number is described by T = ( T1, ..., Th). A component of this vector corresponds to the amount of tax that the consumer h is then paid to the tax authorities.

The material or tax incidence by the vector u = Delta (Delta u1, ..., uh Delta ) is described. A component of this vector corresponds to the utility loss suffered by the consumer h through taxation.

• Taxes and duties