ABSTRACT
In a two-factor world of capital and labor, a tax on labor is the same in incentive terms as a value-added tax, consumption type. That tax allows complete deduction of the cost of capital goods in the year of purchase. It thereby achieves the same incentive effects as it would if it disallowed that deduction but exempted the annual earnings on the investment while allowing deduction of depreciation. The same point has been made in the chapter on income taxation in demonstrating that fully accelerated depreciation is equivalent to normal depreciation with a zero tax rate on net income from the investment. The chapter deals with taxes that are not imposed on domestic production domestically consumed. It therefore excludes the export and import taxes levied as part of a general sales tax system or an excise system. The taxes in question are selective; a general tax on all exports but not on home consumption of the exported articles is rare.
