Adam Smith's Theory of Tax Incidence: An Interpretation of His Natural-Price System

Takuo Dome

Cambridge Journal of Economics, 1998, vol. 22, issue 1, 79-89

Abstract: David Ricardo criticized Adam Smith's statement that taxes levied on raw produce, necessities, wages, and profits would fall on rent. Ricardo thought that these taxes would fall on profits. This paper examines Smith's theory of tax incidence in a Ricardo-Sraffa system of price determination. Consequently, the difference between Smith and Ricardo is attributed to two facts: (1) that Smith's system contains rent as an endogenous variable, giving the rate of profits exogenously; and (2) that Ricardo's system does not contain rent, making the rate of profits endogenous. Copyright 1998 by Oxford University Press.

Date: 1998
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