Indirect Taxes, Prices and Investment-Some Aspects

Some Aspects G Narayanan The argument that a general reduction in the level of indirect taxes will help to reduce prices and costs is valid only if it is assumed that there is an equivalent decrease in government expenditure. But given the need to finance pre-determined amounts of government expenditure, commodity taxes are certainly less inflationary than the alternative of deficit financing. The shift of resources to the Government achieved by a budgetary deficit is not permanent in the sense thai the deficit, and the consequent inflationary impulses, will have to be repeated year after year to finance a given monetary expenditure by the govern- ment, whereas in the case of a commodity tax {or any other tax) the shift of resources to government is permanent.