The distinction between direct taxes and indirect taxes traditionally rests on a view of the incidence of the two kinds of tax. The incidence of a tax identifies who suffers loss of income or welfare as a result of the imposition of the tax. This may differ from the location of the legal liability for payment of the tax if the payer is able to shift part or all of this liability to some other agent. The capacity to shift the tax burden in this way depends on the elasticities of demand and supply of the taxed factor or commodity. Direct taxes are those for which the legal liability and the incidence are identical: indirect taxes are those where the tax is shifted, most usually to final consumers.
- Atkinson, A.B.., and J.E. Stiglitz. 1980. Lectures on public economics. New York: McGraw Hill.Google Scholar
- Carter Commission. 1966. Report of the Royal Commission on Taxation.Google Scholar
- Hicks, J.R. 1939. Value and capital. Oxford: Clarendon Press.Google Scholar
- Meade, J.E. (chairman). 1978. The structure and reform of direct taxation. London: Allen & Unwin.Google Scholar
- Musgrave, R.A., and M. Krzyzaniak. 1964. The shifting of the corporation income tax. Baltimore: Johns Hopkins Press.Google Scholar
- Simons, H.C. 1938. Personal income taxation. Chicago: Chicago University Press.Google Scholar