Knowledge that Transforms

THE SUBJECT of the of the yield of various types of taxes to the movements of the trade is of great practical importance; but it has been almost completely overlooked in the standard English works on public finance'-perhaps because, until recently, the science of public finance has been built almost entirely upon a framework of theories of a static or evenly progressive economic system. It therefore seems worth while to outline a theory of the subject, and to try to obtain some simple statistical measurements. The first problem is to discover a satisfactory standard against which to measure the cycle sensitivity of taxes, which can be applied at different times and in different countries. Since money income is the ultimate source from which all taxes must be paid, it seems desirable to measure fluctuations in the yield of particular taxes against fluctuations in the total of national social income,2 wherever satisfactory figures for these are available. It is, of course, previously necessary.to eliminate the effects upon the yield of alterations in the rates or basis of the tax, which have taken place during the period under review. We can then say that the of any tax, in any year, or in any phase of the trade cycle, is measured by the formula Percentage Change in Yield Percentage Change in National Social Income This method eliminates from the result the effects of general price movements, and of the expansion or contraction of population; though of course it leaves untouched the effects of long-period changes of relative demand and of the distribution of wealth, in so far as these are independent of the trade cycle. Satisfactory elimination