We consider it necessary to present some brief and synthetic considerations on some tax aspects that on certain occasions are not taken into account in decision-making at the level of economic policy. This is so because there are those who consider taxes as something isolated and independent that only provide resources for the State.
The Matter of Importance
Although collection constitutes a task of significant importance, it is beyond dispute that taxes, or tax policy, is also one of the instruments used by economic policy to achieve the objectives set by it. This means that the tax design adopted by the tax policy must use technical structures appropriate to the goals or objectives sought. Learn more information about independent contractor taxes.
We are going to refer to two basic functions, which, among others, fulfill taxes:
- Capture resources from the economic system to finance public spending, and
- It influences the behavior of economic agents since:
- It affects disposable income and therefore affects demand based on its income elasticity.
- It alters the relative prices of goods and services as well as the factors of production as a function of price elasticity.
That is why, in general, changes in supply and demand in the market originate as a result of variations that occur in the level of income or prices.
Consequently, there is a chain effect that begins with the creation or modification of one or more taxes, which alters the flow of income and the relative prices of goods and services, which affects the expectations and decisions of economic agents. which affects market forces (supply and demand) and finally affects the behavior of the economy. It is evident then that taxes energize the economy and therefore constitute an instrument of it.
If this is the case, the question that arises is: is it not possible in certain cases to use “neutral” taxes that avoid the aforementioned chain incidence?
The first thing, before answering this question, is to agree on what we mean by “neutral” taxes. In our opinion, a tax is neutral when it meets the following characteristics: i) it does not modify the decisions of economic agents in the application of production factors, ii) it does not create a substitution or alteration effect in the production factors, and iii) these aspects indicate that their purpose is to “collect”. (The foregoing, obviously does not understand the “economic neutrality” that a tax could have for taxpayers).
On the other hand, “non-neutral” taxes produce: i) alterations in the expectations and decisions of economic agents, ii) therefore generate a substitution effect by altering the use of production factors and iii) their objective, although not Set aside collection, they generally have a “finalist” character and therefore affect market mechanisms, orienting supply and demand.
