1902 Encyclopedia > Taxation


TAXATION. With regard to taxes in general Adam Smith lays down four maxims which have been briefly described as the maxims of equality, certainty, convenience, and economy. The treatment of the general principles of taxation by subsequent writers consists in the main of the development and criticism of these celebrated canons.

Equality. Equality of Taxation.—The subjoined passage from Adam Smith contains the germs of several distinct theories of what constitutes just or equal taxation:—
"The subjects of every state ought to contribute towards the support of its government as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists wdiat is called the equality or inequality of taxation. Every tax, it must be observed once for all, which falls finally upon one only of the three sorts of revenue above-mentioned [viz., rent, wages, profits] is necessarily unequal in so far as it does not affect the other two. In the following examination of different taxes I shall seldom take much further notice of this sort of inequality, but shall in most cases confine my observations to that inequality which is occasioned by a particular tax falling unequally upon that particular sort of private revenue which is affected by it."

The first sentence implies (a) that every Government has the right to exact contributions for its support from all its subjects. According to this view, the right of taxation is derived directly from the conception of sovereignty. It was the determination to insist on this principle which led to the retention of the 3d. per lb duty on tea, that "figment of a tax, that peppercorn rent," which lost the British their American colonies. The Americans opposed to this absolute doctrine the maxim that taxation ought to be coincident with representation,—that only those who shared in the powers should have the burdens of government. If the latter opinion is strictly construed it would follow that all taxes on articles of universal consumption are unjust except in a country where all who have the natural have also the legal capacity of voting. The doctrine of sove-reignty as the basis of taxation, pushed to its logical extreme, results in the maxim that a Government should impose such taxes as are " most easily assessed and collected, and are at the same time moat conducive to the public interests" (M'Culloch). Just as a general looks to the efficiency of his army as a whole, and is prepared to sacrifice any portion if necessary, so, it may be said, the state should not regard the particular interests of individuals, but should rather consider the nation as an organism, or, to adopt older phraseology, a leviathan. So far as the political existence of a state is concerned, this view seems to meet with general acquiescence even in modern times, when patriotism is often classed amongst the doubtful virtues, but no ideal of a perfect state has yet met with such acceptance in any nation as to render popular a complete neglect of private interests.

Accordingly, a second basis of taxation (b) is found in the expansion of the term " abilities" used by Adam Smith, which leads to the position that taxes ought to be levied so as to involve equality of sacrifice on the part of the contributors. This is the ideal of taxation which was advocated by Mill and Fawcett. " Equality of taxation as a maxim of politics," says the former, " means equality of sacrifice. It means the apportioning the contribution of each person towards the expenses of government, so that he shall feel neither more nor less inconvenience from his share of the payment than every other person experi-ences from his." It is admitted that this standard cannot be completely realized, but it is thought to furnish a proper foundation of remission in some cases and of pro-portional increase of taxation in others. It is generalby on this ground that it is proposed to leave incomes below a certain amount untaxed,—a plan which, so far as direct taxes are concerned, has been adopted in the United Kingdom. It is clear, however, that any taxes on com-modities in general use must infringe this canon, whilst the distinction between " necessaries " and "luxuries," as Adam Smith pointed out, is difficult to draw in com-munities advancing in civilization; and certainly a con-siderable portion of the taxes on stimulants is, as a matter of fact, derived from persons whose incomes are below what is generally considered a reasonable minimum for the standard of comfort, and such persons would prob-ably consider enforced abstinence a greater sacrifice than the payment of a direct tax. It is also principally on the ground of equality of sacrifice that the proposal for graduated or progressive taxation rests. It is argued that a person with ¿£10,000 a year can pay 10 per cent, (for example) as easily as a person with £1000 can pay 5 per cent. It is to be observed that the principle of equality of sacrifice regards the payment of taxes as duty imposed on the subjects of a state independently of the advantages they may derive individually from the expenditure of the amount levied.

A third basis of taxation, however, is found in the principle (c) that taxes ought to be considered as payment for valuable services rendered by the state to individuals, and this seems to be the position Adam Smith had in view in introducing the clause " under the protection of the state," and in comparing the individuals of a great nation to the joint tenants of a great estate. It is easy to show, as Mill does, that, if protection is taken in its narrowest signification, as a matter of fact the poor need more protection than the rich, but the argument becomes more plausible, and more consonant with the general teaching of Mill, if stress is laid on the protection and assistance afforded by the state in the process of acquisition of indi-vidual fortunes—a view of taxation sometimes called the social dividend theory (cf. Walker, Helferich). It is really on this ground that Mill proposes that the "unearned increment" from land should be taken by the state, and, as has often been pointed out, " unearned increments" are by no means confined to land. Without much exag-geration the state may be regarded as a partner in all industrial undertakings, and is therefore entitled to a share in the proceeds. In a somewhat similar manner, poor rates, education rates, <fec, have been regarded as of the nature of insurance paid by the rich against the care-lessness of the poor. The principle under consideration has been generally applied in cases in which the service rendered by the state and the benefit accruing to indi-viduals are easily discovered and. estimated, especially in connexion with local taxation.

The object of taxation is in general to provide the state with an adequate revenue, but in all cases the indirect effects are important, and sometimes provision of revenue is considered of secondary importance. Accordingly it has been maintained (d) that the state ought to use its powers of taxation for the promotion of various social ends. Adam Smith remarks that "it has for some time past been the policy of Great Britain to discourage the consumption of spirituous liquors, on account of their supposed tendency to ruin the health and corrupt the morals of the common people," and in our own times the falling off in the revenue from alcoholic drinks often furnishes a subject for apparent congratulation in "budget" speeches. German writers with socialistic tendencies (e.g., Wagner) have emphasized this social point of taxation ; and Mill, although disapproving of graduated taxation of income, advocated the imposition of extremely heavy succession duties, with the object of promoting a better distribution of national wealth and compelling individuals to rely on themselves. Many nations again have imposed duties on imports with the view of protecting and encouraging home industries, and most of the import duties levied in England before the great reforms of Peel were of this nature. Accordingly, both theoretically and practically, the promotion of social or moral ends may be considered as a fourth basis of taxa-tion. It is worth noticing that in early times the fines received in the courts of justice were an important source of revenue.

Whatever basis of taxation be adopted, the elementary principle of justice noticed in the conclusion of A. Smith's first canon must be considered. If it is just to tax A, it is just to tax B under precisely similar circumstances. Thus stated, the principle seems almost formal, but for practical purposes small differences in circumstances may be neglected, and it is clear that in any great nation the taxpayers may be arranged in a limited number of groups, within each of which the constituent individuals may be regarded as similarly situated. A tax on rent, or wages, or profits would be obviously unequal if those in one place or employment were taxed while those in another were left free. The practical difficulty is to discover what cases may fairly be regarded as similar, especially if equality of sacrifice be taken as the ideal.

As a matter of fact, in every civilized community a comphx system of taxation is adopted, the different parts of which rest in different degrees upon the various prin-ciples just noticed. Some taxes are justified on the grounds of their convenience to the sovereign power, and others are increased or diminished in certain cases in accordance with the principle of equality of sacrifice; some are regarded as payments for services rendered by the state, others partake of the nature of sumptuary regulations or are approved on various social or moral grounds; and sometimes the imposition of one productive tax involves, on the ground of simple equality, the adop-tion of similar taxes which are hardly worth collecting.
The remaining canons of Adam Smith are partly, like the Cer-first, ethical in character partly purely economic. Of the tainty. second—the canon of certainty—Adam Smith remarks :— " The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person [on the ground of the otherwise arbitrary powers which are given to the tax-gatherer] .... The certainty of what each individual ought to pay is in taxation a matter of so great importance that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty." Perhaps the best example of the infringement of this canon is furnished by the taxes levied from the miserable pro-vincials by their Roman governors.

The third rule—the canon of convenience—which enjoins Con-that " every tax ought to be levied at the time or in the venience. manner to which it is most likely to be convenient for the contributor to pay it," may be justified, not merely on general grounds of good government, but also on the special economic ground of the increase in the productive-ness of taxes which satisfy the condition. It has been found possible to raise a considerable revenue by taxes on commodities, the payments of which by the consumers are made in insensible portions, when it would have been im-possible to collect the same amount by direct taxation at comparatively long intervals. Taxation is in this respect like bleeding.
The fourth rule—the canon of economy—states as its Economy, general principle that " every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state." Taxes may, accord-ing to Adam Smith, break this rule by requiring a large number of officials for their collection, by restraint of trade and production, by encouraging smuggling, and by causing unnecessary vexation; " and, though vexation is not, strictly speaking, expense, it is certainly equivalent to the expense at which every man would be willing to redeem himself from it." On smuggling Adam Smith elsewhere remarks that " to pretend to have any scruple about buying smuggled goods would in most countries be regarded as one of those pedantic pieces of hypocrisy which serve only to expose the person who affects to practise them to the suspicion of being a greater knave than his neighbours." It may be observed that in practical politics it is generally taken for granted that a tax which can be evaded will be evaded, and indirect methods of taxation are to a great extent devices by which possibilities of evasion are restricted.

To these general rules of taxation explicitly given by other Adam Smith, the following may be added, most of which general are implied in different passages of his treatment of taxa- P.™1" tion, but have been expounded and emphasized by subse-quent writers. A convenient summary is given by Hel-ferich in Schonberg's Ilandbuch der Politischen Oelconomie (vol. ii. p. 138). (a) A given amount of revenue is, as a rule, both from the point of view of the Government and its subjects, more conveniently raised from a small number of very productive taxes than from a larger number with smaller returns per unit. This was one of the principal financial reforms advocated by Adam Smith with reference to the customs duties, and has been carried out in the United Kingdom by Sir Robert Peel and his successors. The inextricable confusion of the customs duties levied before these reforms were effected can only be realized by those who study the details of the history of taxation. A similar process of simplification has been partially applied to the direct taxes, but in many cases (especially in local taxation) the rule is more honoured in the breach than in the observance, (b) A good system of taxation ought to provide for a self-acting increase in the revenue in propor-tion as the population and the consequent demands for governmental expenditure increase. It has been found by experience that an old tax causes less inconvenience than a new tax of smaller amount, a fact which is so striking in some cases as to have given rise to the saying that an old tax is no tax. (c) Those taxes are best which yield a steady and calculable return, instead of a return fluctuat-ing in character and difficult to estimate, (d) Those taxes are best which in case of need can be most conveniently increased in amount. It is this characteristic of the income tax which renders it so popular with chancellors of the exchequer, and it was partly on this ground that Mr Gladstone substituted a tax on beer for the tax on malt, (e) Regard must always be paid to the real inci-dence of taxation, and care taken that the real burden of the tax falls on those aimed at by the legislature. No part of the theory or practice of taxation has given rise to so much controversy as the incidence of particular taxes, a subject indeed of so much difficulty and importance as to occupy the greater portion of the treatment by systematic writers.

Direct INCIDENCE OF TAXATION.—Taxes are generally divided and into direct and indirect. A direct tax is defined by Mill taxesT' as one " demanded from the very persons who it is in-tended or desired should pay it." Others (e.g., M'Culloch) define it as a tax taken directly from income or capital. In the former definition non-transferable taxes on expendi-ture would be included (e.g., a tax on livery servants), but not in the latter. Mill's definition has been generally adopted (e.g., by Wagner, in the German Hand/nick, vol. ii. p. 152); but in any case the most important direct taxes practically are those levied on income or capital directly, and the most important indirect the customs and excise duties. In examining the incidence of taxation the order of arrangement adopted by Adam Smith seems best. He discusses separately taxes on the three great species of income,—rent, profits, and wages (appending to the articles on the first two an examination of taxes upon the capital value of land, houses, and stock), and taxes intended to fall indifferently upon every species of revenue, viz., capitation taxes and taxes upon consumable commodities. Taxes on Taxes on Rent.—1What is commonly known as rent rent- consists in general of two parts, which may be termed economic rent and profit rent. Economic rent arises from the superiority of advantage of any source in the produc-tion of a certain amount of utility over the least productive source which the conditions of demand and supply (includ-ing transmission to market) render it possible to employ. Thus, in the production of food, some lands have an advantage in fertility or situation ; again, in furnishing amenities of accommodation or facilities for business, some houses have from their situation a similar advantage; and again,' different processes in the arts and manufactures are superior to others (giving rise to patents). In all these cases where the amount of the superior sources is limited (naturally or artificially), and recourse must be made to inferior sources of supply, economic rent is paid for the superior advantage. Any tax imposed on this species of revenue falls on the owner. If levied in the first instance from the lessee, he will pay so much less rent, and any new taxes imposed during the currency of leases ought, if intended to fall on the owner, to be taken directly from him. It may be assumed that every owner of a superior source has exacted the highest price obtainable for its use, so that he cannot transfer the tax to the tenant, nor through the tenant to the consumer. If, for example, a tax is imposed on the economic rent of agricultural land, the landlord cannot exact it from the tenant (for if the tenant could afford more rent, why under competition was he not forced to do so before 1) nor from the consumer of the produce, for the price is obviously determined inde-pendently of rent. Similarly a tax on the ground rent of houses, if it be assumed that the land is useless for other purposes, must fall on the owners; although a certain portion will be transferred to the occupier if the landlord could use it otherwise and escape the tax (cf. Mill, bk. v. ch. iii. § 6). Taxes on economic rent of various kinds, so heavy as to absorb the whole amount, have been advocated by some theorists on grounds noticed under Adam Smith's first canon. It is said they would impose no burden on the state as a whole, that they would not affect production or accumulation, and even that the substitution of the state for private owners—who are simply nati consumere fruges—would really increase the wealth and power of the nation by compelling these unproductive consumers to work, and by lightening the pressure of taxation on industry. It is, however, obvious that the confiscation of rent would, seeing that land has for generations been in the circle of exchangeable commodities, strike at the roots of the institution of private property. Apart from this general objection, there would in the case of agricultural land be great difficulty in separating economic from profit rent, and any exceptional tax on the latter would obviously tend to check agricultural improvements.

Taxes on Profits.—Profits, as commonly used, is a term Taxes on embracing three elements which, from an economic and Pronts-financial point of view, are quite distinct in character, viz., interest (pure and simple), insurance against risk, and earnings of management. The interest on capital in any industrial area, lent on the same security, tends to equality. If, then, a tax is imposed on interest in every form, the incidence in the first place will be on the owners of cap-ital. But two indirect consequences will follow. (1) As Adam Smith remarks, " the proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular country. He would be apt to abandon the country in which he was exposed to a vexatious inquisition in order to be assessed to a burdensome tax, and would remove his stock to some other country, where he could either carry on his business or enjoy his fortune more at his ease." In this case the ultimate result would be that the country in which the tax was imposed would possess less capital, and thus would yield a higher rate of interest sufficient to counterbalance the burden of the tax. (2) The tax would tend to check the accumulation of capital within the country, so far as the interest received is a cause of accumulation, with the same ultimate result as in the former case. It must, however, be observed that the rate of interest is only one of the causes affecting the accumulation of capital.

A tax on some particular form of interest (security still being supposed perfect), for example on mortgages on land, would obviously fall on the borrowers. In the same way a tax on that part of the profit rent of houses which is interest on capital tends to fall on the occupier. In gene-ral, however, the security is more or less imperfect, and the insurance against risk is allowed for in the rate of interest charged on borrowed capital. Thus a tax which took equal percentages from all species of interest would be in part a tax on insurance against risk, and the tendency must be for such a tax to fall on the borrowers of capital. Suppose at any time a perfect security yields 3 per cent, and one with greater risk 6 per cent., then 3 per cent, represents the estimated value of the insurance against risk. A tax which reduces the net yield on the first to 2 per cent, would reduce the net yield on the latter to 4 per cent. In order, then, for the insurance against risk to remain the same, the rate yielded by the latter must rise from 6 to 1\ per cent. It follows, then, that a tax levied on all forms of interest (no allowance being made for risk) would tend to check investment in proportion as risk was involved, and would thus check industrial enterprise. This result would follow even although the rate of interest on perfect security, owing to the causes mentioned above, were raised in proportion to the tax.

A tax on that part of profits known as earnings of management would, if imposed generally, fall in the first instance on the entrepreneurs or employers of capital, and with similar indirect consequences to those just noticed in regard to interest. Capital would tend to flow abroad, and accumulation would be checked, since in general the employers of capital are also to a large extent the owners. So far as profits, in this sense, are of the nature of rent (a view recently advocated as regards all profits by Prof. Walker), a tax on profits would be analogous to a tax on rent. If the differences in the net advantages of different methods of employing capital are supposed to remain constant (according to Prof. Marshall's view of earnings of management), a proportional tax on profits must be in part transferred to the consumers of the articles produced, in the same way as a tax on interest with risk w_as shown to fall on the borrower. It will be seen from this general survey that the incidence and effects of a tax on profits (taking the term in its common acceptation without analysis) are extremely difficult to determine, and the practical difficulty is still greater than the theoretical. For, as M'Culloch and others have shown, profits are always fluctuating and difficult to estimate. So great, for example, is this difficulty felt to be as regards farmers' profits that in the income tax it is assumed that such profits bear a certain proportion to the rent paid for land on a purely empirical rule, which may happen to hit the mark in a majority of cases, but is much more likely to be unequal and unjust in its operation.

A tax on some particular form of profits (as distinct from a general tax on profits) will, it is generally said, fall on the consumer of the article produced, on the ground of the tendency of profits to equality. This view will be noticed below under taxes on consumable commodities. Taxes on Taxes on Capital.—In early English history taxes capital. Upon capital of a very simple kind played an important part. A grant, for example, of certain fractional parts of movables, commencing with the famous Saladin tithe (on both rent and movables) in 1188, and gradually settling down to a fifteenth for the counties and a tenth for the towns, prevailed for more than three centuries. In 1334 a fifteenth and tenth was fixed at a certain sum for each township, and after this date a grant of one or more " fifteenths and tenths " meant simply a grant according to the scale then fixed (Dowell, vol. iii. p. 75). But in our own times taxes on capital are levied principally when property changes hands, and may be divided, as they are by Adam Smith, according as they are levied when pro-perty passes (a) from the dead to the living, (b) from the living to the living.

It is obvious, as regards incidence, that taxes of the first class (a) are the most direct of all taxes, in the sense that they cannot be transferred to other persons by the beneficiaries. The principal difficulties connected with the "death duties," as they are often called, arise in connexion with the canon of equality of taxation. Opinion is still divided on the proportions which ought to be paid by personal and real estate respectively, as well as on the advisability of the taxes being made progressive according to the value of the property, and there are still greater difficulties in connexion with life interests in settled pro-perty. Mill was strongly in favour of making the death duties very heavy and also graduated. " I conceive," he says (Pol. Peon., bk. v. ch. ii. § 3), " that inheritances and legacies exceeding a certain amount are highly proper subjects for taxation, and that the revenue from these should be made as great as it can be made without giving rise to evasions by donation during life, or concealment of property, such as it would be impossible adequately to check. The principle of graduation, that is, of levying a larger percentage on a larger sum, though its applica-tion to general taxation would be in my opinion objec-tionable, seems to me both just and expedient as applied to legacy and inheritance duties." The principal objec-tions urged against such taxation are, that a stimulus would be given to personal extravagance and a check placed on accumulation, and that in consequence indirect production would be lessened, partly by want of capital and partly by the check placed on production on a large scale. As regards the want of capital, apart from the check placed on saving, there would be a tend-ency to send it abroad. A heavy tax on large capitals at home will place a premium on investments abroad, in which evasion would be easy. Perhaps, with the present rate of accumulation, the objection may be made light of, as it is by Mill; but the second, if less obvious, is more important. All our great staple manufactures are necessarily conducted on a large scale, and in many respects also large agricultural capitals are most productive. In manufactures, as a rule, the larger the scale of operations the more extended will be the division of labour in production, and the greater the facilities for ready sale in foreign markets. Of all the causes which contribute to our commercial prosperity, perhaps the most important is the large scale on which our operations are conducted. We are able to employ machinery where the foreigner, working on a smaller scale, is obliged to use manual labour. There can be little doubt that graduated taxation, even on the modi-fied form proposed by Mill, would tend to check produc-tion on a large scale. Indirectly it might artificially foster joint-stock companies, (b) Taxes on the transference of property from the living to the living cannot, as Adam Smith points out, be very easily taken directly, as such transactions for the most part actually are or might be secret. This has led to the invention of stamp and regis-tration duties. The penalty of invalidity attaching to unstamped documents of various kinds has proved a very effective deterrent to evasion. A tax on sales will vary in its incidence according to the nature of the commodity and the degree of competition or monopoly (cf. H. Sidg-wick's Principles of Pol. Peon., bk. ii. ch. x.). The most important case is that of taxes on the transfer of land. Theoretically it seems that, just as the farmer who takes land on rent offers more or less rent according to the burdens imposed on the land by rates, &c, so the purchaser of land will consider any expenses connected with its acquisition as part of the capital value, and thus any taxes on transfer will really fall on the sellers. If, however, the taxes are imposed in such a way as to fall less heavily on land when sold in larger than in small quantities, it is clear that the tendency will be for the differential portion of the tax at least to fall on the purchaser of a small amount; and practically at present this feature is characteristic of the English system. A tax on the transfer of stocks and shares is generally held to fall on the seller, as in case of repeal he would obtain so much more; but in this case the same considerations apply as in the case of interest noticed above. A curious example of legal evasion is furnished by time-bargains ; and the imposition of the tax directly on the contracts of sale, instead of as at present on the actual transfer, has been strongly urged.

Taxes on Wages.—It is clear that the treatment of taxes on wages will depend on the general view taken of the determination of the rate of wages. Adam Smith appears to lay undue stress on the price of provisions, and to think that in most cases taxes on wages must fall on the employer of labour (bk. v. ch. ii. art. iii.). There seems, however, to be no sufficient reason why a tax on labour should be transferred to the employer, except in the case where the wages are really at a minimum below which the supply of efficient labour could not be kept up. . Even in this case, a.s Prof. Walker shows, there would probably be a degradation of labour before the rise in wages was effected. Certainly no practical statesman at the present time would venture to propose a direct tax on wages, under the idea that it would be transferred to the em-ployer. In Germany it was found necessary to abandon the system, owing to the hardship inflicted on the poor. At any rate, in all cases in which the rate of wages is above the "necessary" minimum, a tax on wages must fall on the labourer. A differential tax on some particular species of employment would, unless it partook of the nature of a monopoly, tend to fall on the consumer of the article produced or the person who enjoys the service rendered. In every case, speaking generally, the incidence of the tax will depend on the conditions of the demand and supply of the labour in question, and no further analysis can be given without entering into the general principles governing wages. See WAGES. Capita- Capitation taxes are chiefly of interest historically, as hon illustrated in England by the poll-taxes imposed at various taxes, times. The income tax as at present levied is in reality not a single uniform tax, as might at first sight appear, but a tax on the various species of rent, interest, profits, and wages. The anomalies which arise from practically taking income as uniform have often been pointed out and acknowledged, but the authority of Mr Gladstone may be quoted in support of the view that the practical difficulties in the way of a readjustment more in accordance with theo-retical principles are insuperable. The objections noted above to a graduated property tax apply, mutatis mutandis, to a graduated income tax, which appears, however, to find increasing favour on the Continent. A full discussion of the anomalies of the income tax would involve a repetition of the analysis of the taxes on the various species of income. Taxes Taxes on Commodities.—The general principles appli-es con- cable in this case are that, where production takes place commo6 uria-er ^ree competition, the tax will, owing to the tendency dities. °f profits to equality, be transferred to the consumer, but that, when the article is practically monopolized, a tax must fall on the monopolist, on the assumption that he has already fixed such a price for the article as will, consider-ing the law of demand and the expenses of production, yield him a maximum revenue. The practical difficulties connected with the assumption of equality of profits have been well exposed by Cliffe Leslie (Financial Reform : Cobden Club Essays, 2d series, 1871-72).

The incidence of export and import duties is peculiarly difficult to ascertain even theoretically. The prevailing opinion that an import duty necessarily falls on the consumer of the import necessarily involves as its counter-part the position that an export duty must fall on the consumer of the export. If the latter view is upheld it is curious that export duties find such little favour with practical statesmen. It is clear, however, that the real inci-dence of export and import duties will depend partly on the conditions of production in various countries, partly on the variations in demand due to changes in price, partly on the indirect influence on the general balance of trade, and partly on the possibility of using substitutes for the article taxed (cf. H. Sidgwick's Principles of Pol. Econ., bk. iii. ch. v.; Cournot, Pevue Sommaire des Doctrines Economiques, sects. 5 and 6). A fuller examination is not possible in the limits assigned to this article. In con-clusion, it may be pointed out that a thorough investigation of the general principles of taxation must presuppose the principles of political philosophy, whilst a full inquiry into the incidence of particular species of taxes must presuppose the principles of political economy. (J. s. N|.)

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