Relative Prices and Tax Policies: Some Preliminary Implications and Results

One of De Viti de Marco's lasting contributions to economic theory is his demonstration that the effects of alternative taxes on relative prices can be analyzed as a reallocation of demand. His analysis of tax shifting starts by changing the resources available to the consumer — changing the budget constraint — while holding the supply schedules of taxed and untaxed commodities unchanged. Shifts in demand force a reallocation of resources, changing producers1 marginal cost, prices and the composition of output.