Tax incidence
The control incidence is the material tax burden resulting from the formal control load by taking into account pass-processes is obtained. This is examined in the theory of control effects.
overview
A discussion of tax fairness can only take place by determining the negative effects of taxation . Attempting to create an optimal tax system is pointless as long as the burdensome effects of different types of tax are unknown.
That is why the teaching of incidence is one of the oldest and most important research fields in tax science. The core of the teaching is the distinction between formal and material tax burdens. The formal tax burden, also known as the tax incentive, is the amount of money that the taxpayer pays to the tax authorities . The material tax burden (incidence) describes the loss of prosperity that remains with the taxpayer or other persons after the completion of all pass-on processes and distortions. Distortion is understood as the additional burden of taxation triggered by taxpayers trying to reduce their tax burden by changing their behavior. The totality of the financial burdens and the additional burdens caused by the tax corresponds to the material tax burden or tax incidence. The tax incidence is intended to measure the personal distribution of those prosperity losses that occur after the completion of all pass-on processes and that can differ significantly from the formal tax burden.
Formal and material tax burdens therefore differ because, on the one hand, pass-on processes take place and, on the other hand, the taxation causes distortions. The tax incidence does not depend on whether the tax is levied on the buyer or the seller, but it depends on the elasticity of demand and supply. The tax burden tends to be borne by market participants, whose elasticities are low and who are therefore less able to evade the burden of behavioral changes.
If taxation is desired, the poll tax without sales tax should eliminate the distortion loss due to underconsumption, as the taxpayer first pays a certain fixed amount from his income without then being charged again when he consumes. However, a poll tax is viewed as socially unjust because it does not allow any distinction to be made based on productivity.
Budget incidence
In a closed economic model, the state uses the taxes it collects to buy goods or to pay transfers to households and businesses. The tax revenues are consistent with the government spending the same. Consequently, not only tax payments should be taken into account in the analysis, but also at the same time the private benefit gains associated with government spending. This is called the budget incidence. The budget incidence represents the combined negative effects of government revenue and government expenditure. The government budget equation always applies to its derivation; all tax revenues cover government purchases of goods or transfer payments. In the context of taxation, however, the benefits of public goods associated with government spending are not taken into account (tax incidence); at most, money returns to the private sector are modeled so that a closed economic cycle results. The comparative comparison of the tax-induced loss of utility and the utility gains caused by public goods and transfers - i.e. the question of the optimal scope of state activity - is the subject of general political science and finance. In some cases the explanatory goal pursued with the budget incidence is too ambitious and one restricts oneself to the so-called specific incidence.
Differential incidence
The budget incidence and the differential incidence are logically on the same level. These two techniques only differ in the question they pose. The specific incidence, on the other hand, is a preliminary stage for investigating the budget incidence, and the results obtained here should be treated with caution. When examining the differential incidence, government spending is held constant and one tax is increased or decreased at the expense of another tax. The differential incidence is particularly useful when examining the impact of tax reforms. The question is, for example, what effect can be expected from a reduction in income tax with a simultaneous revenue-neutral increase in sales tax. Just like the budget incidence, the differential incidence can be studied in a closed model in which the state's budget equation is always fulfilled.
Specific incidence
When examining the specific incidence, a single tax is thought to be increased or decreased while assuming that both government spending and other taxes remain unchanged. Strictly speaking, of course, this cannot be the case. The specific incidence can therefore be justified in the context of a partial analysis that does not look at the overall economy but at an individual market. However, it must be checked in each individual case whether the results obtained here tolerate a transplant at the macro level. The advantage of dealing with the specific incidence lies on the didactic level, because the partial analytical treatment of an individual market is easier than dealing with macroeconomic models; and in many cases the knowledge gained is consistent with what emerges from a macroeconomic analysis.
example
In the following, the incidence is precisely defined using a simple macroeconomic model:
Consumers who are identified by the numbers h = 1 ... H live in the model economy considered . The term "consumer" refers to both households and individuals. In an imaginary state without taxes, every consumer chooses a certain bundle of goods according to his financial possibilities and thereby achieves the benefit u h . After the introduction of taxes, every consumer pays the tax amount T h to the tax authorities. This tax amount can represent any payment that has been made in the new equilibrium due to any chosen tax system. The formal and material tax burden are now characterized by comparing the fictitious status without taxes and the status with taxes. These differ superficially through the payment amounts T h . What is important, however, is that the bundles of goods demanded by consumers are different in the two states. Normally, a consumer is forced to renounce consumption by taxation and his benefit is reduced by the amount delta u h, measured in monetary units . This allows the formal and material tax burden to be clearly defined:
The formal tax burden or payment burden is described by T = (T 1 , ..., T h ). One component of this vector corresponds to the amount of tax that the consumer h pays to the tax authority.
The material or tax incidence is described by the vector Delta u = (Delta u 1 , ..., Delta u h ). One component of this vector corresponds to the loss of utility that the consumer h suffers from taxation.