An Austrian critique of the neoclassical approach to indirect taxes

Alan G. Futerman () and Luciano Villegas ()
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Alan G. Futerman: University of the Latin American Educational Center
Luciano Villegas: National University of Rosario

The Review of Austrian Economics, 2022, vol. 35, issue 4, No 6, 517-529

Abstract: Abstract According to neoclassical economic theory, indirect taxes fall on both suppliers and demanders, where the greater proportion of these impact on that agent whose curve is more inelastic. In this way, inelasticity would be the determining factor with respect to the agent that will bear the higher tax burden of the indirect tax. In the present paper, it is argued that the key to the analysis should not be the inelasticity of supplier or demander’s curve, but the elasticity of the total profit of the firm with respect to the price. Thus, in a market of monopolistic competition (or non-perfectly competitive market), in the absence of perfect knowledge, the hypothesis defended is that the firm absorbs all indirect taxes under any case. The Austrian approach to price formation helps us understand it this way.

Keywords: Indirect taxes; Neoclassical economics; Austrian approach; H20; H22; H25 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11138-020-00525-6

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