Tax: Untold

Any government must rely on taxation to finance its expenses or its squandering. Being the biggest monopoly, a government has total discretion on how to collect tax, without any need for justification. However, as government’s think tank, economists should offer some advice so as to make the collection more rational and convincing. But, are they capable of doing that? There are two tax collection principles: the ability one and the benefit one. The theory for the ability one is called tax incidence. Its underlying rationale is offered by Pigou, who recommended taxing those with lower cost, so as to raise their total cost to the inefficient level. Pigou wanted to equalize resource utilization. The supply curve of the tax incidence theory is Pigou’s, actually Ricardo’s, cost measure. Such curve implies that firms will increase quantity supplied as cost becomes higher. That is absurd and wrong. Hence, the whole traditional tax incidence theory is wrong. This volume will work out the correct ability principle.