The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Direct Taxes

  • John Kay
Reference work entry


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.

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • John Kay
    • 1
  1. 1.