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An Austrian critique of the neoclassical approach to indirect taxes

Author

Listed:
  • Alan G. Futerman

    (University of the Latin American Educational Center)

  • Luciano Villegas

    (National University of Rosario)

Abstract

According to neoclassical economic theory, indirect taxes fall on both suppliers and demanders, where the greater proportion of these impact on that agent whose curve is more inelastic. In this way, inelasticity would be the determining factor with respect to the agent that will bear the higher tax burden of the indirect tax. In the present paper, it is argued that the key to the analysis should not be the inelasticity of supplier or demander’s curve, but the elasticity of the total profit of the firm with respect to the price. Thus, in a market of monopolistic competition (or non-perfectly competitive market), in the absence of perfect knowledge, the hypothesis defended is that the firm absorbs all indirect taxes under any case. The Austrian approach to price formation helps us understand it this way.

Suggested Citation

  • Alan G. Futerman & Luciano Villegas, 2022. "An Austrian critique of the neoclassical approach to indirect taxes," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(4), pages 517-529, December.
    • Handle: RePEc:kap:revaec:v:35:y:2022:i:4:d:10.1007_s11138-020-00525-6
    DOI: 10.1007/s11138-020-00525-6
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    References listed on IDEAS

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