ABSTRACT
The previous chapter was entirely devoted to a presentation of the intertemporal theory of the disposal of household income in a way suitable for the study of certain effects of taxation. In debates on fiscal policy, discussion has always centred on the question of how various forms of taxation affect consumption and saving; it is generally held that the tax system ought to be such that saving is hindered as little as possible. The motives behind this opinion are very varied. For instance, there is the point of view, that saving determines the amount of investment and thus determines the development of the standard of living in the long run. The most usual point of view is, however, that the function of taxation is to provide the State with goods and services, and that taxation fulfils this function by reducing demand for consumer goods from the households. It is then natural to choose those taxes which achieve this end most effectively; for in this way resources are released for use by the State with the least possible burden of taxation.
