Taxation and Kalecki's theory of the business cycle

Abstract

Kalecki's theories of tax incidence and the business cycle are integrated to demonstrate how the amplitude of the business cycle is affected by the taxation of wages and profits. The impact of taxation depends on: (1) the stage of the cycle; (2) the economy's long-run position; (3) the direction of tax policy; and (4) the process and degree of tax shifting. With no tax shifting, a wage tax dampens the cycle and a profits tax amplifies it. With tax shifting, the effects of both taxes become indeterminate.

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