What is ‘Incidence of Taxation’?

This is an economic term for describing how the tax burden between buyers and sellers is divided. It is said to be directly related to the price elasticity of demand and supply such that when supply is more elastic than demand, the buyers bear the tax burden. On the flip side, if demand is more elastic than supply, producers bear the tax burden. The incident of taxation therefore represents the distribution of the tax obligations that must be covered whenever there is a buying and selling. It is important to bear in mind that the level at which each party participates in covering the tax obligation shifts based on the associated price elasticity of the product/service in question as well as how the product/service is currently affected by the principles of demand and supply. In any case, never forget that the whole essence of  taxation is to raise money for public expenditure. Taxation is (as a matter of fact) the main source of Public Finance as we already saw in the previous lesson. Let is now see how government spend money generated from taxation.

The Structures of Public Expenditure (Re-current and Capital Expenditure)

Public expenditure has to do with all the expenses incurred by the government in its purchase of value for public utility. It can also be seen as the spending made by the government of a country on the collective needs/wants of its citizenry; such needs as payment of pension, provision of infrastructure, etc. In all public expenditure plays four major roles as you shall see enumerated below-

1. it contributes to current effective demand
2. it expresses a coordinated impulse on the economy, which can be used for stabilization, business cycle inversion, and growth purposes;
3. it increases the public endowment of goods for everybody;
4. it gives rise to positive externalities to economy and society as a whole (or in specific sectors and geographical areas), the more so through its capital component

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