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Direct versus Indirect Taxation: Trends, Theory and Economic Significance

The choice of the direct-indirect tax mix also is likely to have, as we review below, important consequences in other dimensions of the economy including macroeconomic stability, disparities in income distribution, and foreign direct investment flows. All those, including economic growth, will be revisited in this paper. There are several other potential effects of the choice of tax mix, including the impact on risk taking and entrepreneurship or taxpayers’ moral and voluntary tax compliance. As Atkinson (1977) points out, supposedly taxpayers may show preference for indirect taxation on the grounds that it offers them choice and some politicians may have similar preferences because indirect taxes may be perceived by the public as being less visible. None of these other possible effects will be explored further in this paper.

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Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper1014.

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Length: 63 pages
Date of creation: 01 May 2010
Handle: RePEc:ays:ispwps:paper1014
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