National Price Levels: Do Taxes Matter?

Ephraim Kleiman

International Tax and Public Finance, 1997, vol. 4, issue 3, 377 pages

Abstract: Utilizing a sample of 51 countries for which price leveldata for 1980 were available from stage IV of the ICP project,the paper examines the possible role of taxes in explaining thedeparture of national price levels from purchasing power parities.The results obtained in the paper suggest that the overall burdenof central government taxation, especially of indirect domestictaxes, raises the general price level. No such price effectsseem to be associated with the direct tax burden, supportingthe conventional view of their not being shifted forward. Theperhaps unexpected result, that import duties have no discernibleeffects on the price level, is consistent with earlier findings.Another unexpected result is that the burden of domestic indirecttaxation expresses itself in the prices of tradables, ratherthan of non-tradables. Furthermore, no evidence was found tosupport the view, that tax inflated prices are offset by reducedprices in the untaxed sector, as required for the price levelto be neutral with respect to taxation. Copyright Kluwer Academic Publishers 1997

Date: 1997
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DOI: 10.1023/A:1008672506502

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