The Theory of Tax Incidence: A Diagrammatic Analysis

Some fifteen years ago, Johnson [2]1 applied the concept of the factor production block to the analysis of the distributional effects of an excise tax. Since then, surprisingly little use has been made of geometrical methods in tax incidence theory, as the major advances in this field have been expressed either through verbal argument or, more recently, algebra and differential calculus. This oversight does not represent a healthy development both for the particular reason that geometric analysis has shed considerable scientific light in other areas of economics, and also for the more general reason that alternative methodological approaches often reveal important undiscovered insights. This paper attempts to correct this imbalance by bringing the geometric approach to bear on a policy problem that recently has grown in prominence.