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Emmanuel Saez on Tax Incidence - Dictionary of Arguments

Saez I 12
Tax Incidence/Saez/Zucman: The question of who pays the taxes collected by governments today is (...) what economists call, quite confusingly, “tax incidence.” For example, what would happen if the corporate tax rate were cut? In principle, many things could change: firms could boost shareholder income with higher dividend payments or share buybacks; they could increase the wages of their employees; they could slash the price of the products they sell; they could
Saez I 13
expand investment in factories or in research and development.
Saez I 99
Incidence is a key part of any tax policy analysis(...).Tracing the myriad ways in which changes in taxation affect economic behavior, the level of economic output,
Saez I 100
and the distribution of income across the population is what tax incidence is all about. In one of the oldest and most famous analyses of tax incidence, Adam Smith in The Wealth of Nations explained how taxes on wages could be shifted to capital. If farmers are at the subsistence level (they earn no more than what they need to barely survive), taxing their wage would make them starve. In that event a wage tax would be shifted away from poor peasants toward wealthier landowners, as those owners would be forced to increase pay to keep their workforce alive. Tax incidence boils down to simple empirical questions: How elastic are capital and labor? >Elasticity/Saez/Zucman.
Saez I 103
(...) [the] evidence(1) does not prove that capital taxation has no economic cost. What it shows is that since saving and investment rates do not change much, capital taxes are borne by capital owners in the long run - not labor. Since the capital stock is no lower (and hence wages no lower) when capital taxes are high, the incidence of capital taxes falls squarely on capital. Because the rich derive most of their income from capital, while the working class and the middle class derive most of theirs from labor, capital taxes primarily hurt the rich - not the working class.

1. Thomas Piketty and Gabriel Zucman. “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700–2010.” Quarterly Journal of Economics 129, no. 3 (2014): 1255–1310.

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Saez, Emmanuel

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