The Short-Period Incidence of Taxation 1
Investment is determined by saving out of full-employment income. It is concluded from models, when competitive conditions are assumed, that in the short period the economic incidence of general taxes is the same as their legal incidence. Three groups are distinguished in this model of a closed economy: workers, rentiers and firms. Real incomes for workers and rentiers are measured in terms of the command of their disposable incomes over consumption goods and for firms in terms of the command of their after-tax profits over investment goods. This examination of the short-period incidence of changes in taxation with a balanced budget has shown that, on certain of our assumptions, the actual and legal incidence may differ. Firms, when their after-tax profits are lower, say, as a result of an increase in the tax on profits accompanying an increase in government expenditure, can only restore post-tax profits by obtaining higher mark-ups.