Indirect Tax is a Money Illusion

Kazuto Tominaga

No rn24y_v1, LawArchive from Center for Open Science

Abstract: An indirect tax imposed on a seller of a product assumes "shifting of tax burden" from the seller to the buyer, while the amount of burden each entity bears is said to be unknown before economic analysis. Since taxation is a restriction on property rights, the amount of tax burden, or property appropriated by the government, should be definite. This paper shows that such "tax shift" is a money illusion; when one pays the consideration for the same product, the amount of money has the same purchasing power that buys the product, regardless of whether there is a tax or not. This leads to the conclusion that the seller bears the whole burden of the "indirect" tax. At the same time, price rise must also be a kind of burden to the buyer. This suggests that there exist two kinds of tax burden notions so far used without distinction both in legal and economic discourses.

Date: 2019-06-11
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Persistent link: https://EconPapers.repec.org/RePEc:osf:lawarc:rn24y_v1

DOI: 10.31219/osf.io/rn24y_v1

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