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Public Finance - Chapter VI a

1. Preface

2. Chapter I

3. Chapter I a

4. Chapter II

5. Chapter II a

6. Chapter III

7. Chapter IV

8. Chapter V

9. Chapter VI

10. Chapter VII

11. Chapter VII a

12. Chapter VIII

13. Chapter VIII a

14. Book II Chapter I

15. Chapter II

16. Chapter II a

17. Chapter III

18. Chapter III a

19. Chapter III b

20. Chapter IV

21. Chapter V

22. Book III Chapter I

23. Book III Chapter I a

24. Chapter II

25. Chapter III

26. Chapter III a

27. Chapter III b

28. Chapter IV

29. Chapter V

30. Chapter V a

31. Chapter VI

32. Book IV Chapter I

33. Chapter II

34. Chapter III

35. Chapter IV

36. Chapter V

37. Chapter VI

38. Chapter VI a

39. Book V Chapter I

40. Chapter II

41. Chapter III

42. Chapter IV

43. Chapter IV a

44. Chapter V

45. Chapter Va

46. Chapter VI

47. Chapter VIa

48. Chapter VII

49. Chapter VIIa

50. Chapter VIII

51. Chapter VIIIa

In extenuation of these seemingly oppressive and burden-
some taxes it is necessary to remember the smaller amount
of the national wealth x and the impossibility of limiting
taxes to such articles of superfluous, or at best convenient,
expenditure as alone are dutiable in England. Where good
objects of taxation are wanting, the financier must perforce
adopt those that are indifferent or bad. The direct taxa-
tion of the country is also heavy, and therefore the question
of fiscal reform is primarily one of expenditure. Curtail-
ment in the military and naval outlay and in the cost of
administration would allow at least the removal of the
octrois, combined with a reform of the tax on movable
wealth, that would be a great relief to trade and secure a
fairer distribution of the total load. A judicious reform of
the drink duties might even raise their productiveness with-
out injury in other respects. The whole position of Italian
indirect taxation is a useful illustration of the modifications
necessary in applying general principles to the economic
system of a people at a somewhat low stage of industrial
development. Such taxes as the grist tax or the existing
salt monopoly would be unhesitatingly condemned on
a priori grounds, but they were required in the particular

The relation of indirect taxation to the consumption of
the people is here shown afresh. It is not possible to gain
large returns from a southern people through the duties on
the stronger alcoholic liquors. Such taxation as that of
England would check the use of spirits completely. The
same statement would hold true of any particular article.
The theoretical doctrine that the minimum of subsistence
( should be exempt from taxation, however well it may
sound, can only be applied in a society that has a consider-
able disposable surplus. When dealing with such popula-
tions as those of Italy or India, taxation must, to be effective,
fall on objects that constitute a part of necessary consump-

9. The system of excises had a comparatively early
and wide application in Germany. Without entering closely
into the details it suffices to indicate the general fact.
That the German cities should adopt a system of the kind
was quite natural ; it was merely an octroi applied by a
virtually sovereign state, but it seems that the method was
imitated by the various princes, and notably in Branden-
burg, where 'the general excise ' was introduced in 1640 for
some towns and gradually extended. This tax, which was
limited to the towns, affected corn, meat, drinks, raw
materials, and imported goods. It was intended to fall on
the country through the process of shifting, .and was un-
doubtedly one of the principal sources of revenue. The
re-construction of the Prussian Finances after the French
wars resulted in the substitution of the ' meal and meat '
tax (1820), which was imposed only on the towns, as a
kind of compensation for the ' class tax ' * that affected the
country districts. The yield of these taxes, which were
given up in 1873, was about ^"400,000.

Other taxes, more in accordance with modern practice,
were added. Breweries and distilleries came under excise
supervision, and a moderate tax on the production of wine
was imposed. The beet-root sugar was placed under duty
in 1 840, the old salt monopoly was retained, and tobacco

1 Cp. Bk. iv. ch. 3. 2 for the ' class tax.'
was made to contribute through a tax on the land given
up to its cultivation.

The chief interest of this part of Prussian Finance lies in
the fact that it has furnished the basis for the system of
the present German Empire. Its development had in turn
been influenced by the need of adjusting internal taxa-
tion to suit the regulations of the Zollverein as, e.g. in
the cases of the sugar and tobacco duties. The advances in
technical precision and productiveness since the formation
of the Empire have not been as great as might have been
expected. The salt monopoly was changed in 1867 into a
tax on the article, which has been retained up to the present.
The other objects of taxation are, it must be said, treated
in an unsatisfactory way. Thq sugar duty which ought to
be fairly productive is destroyed by the bounty system
which has absorbed the greater part of the receipts \ Even
when this difficulty has been removed as it will be by the
recent legislation on the subject the yield of the tax will
not be large, as the produce of the industry is mainly
exported, and heavy taxation would be injurious to its
development. The tobacco tax is suffering in a different
way. At present it is levied through the inefficient excise
system, and its amount is consequently low, 10,021,000
marks (^"500,000). The remedy proposed in 1885 was the
establishment of a monopoly, on the same system as that
existing in France, Italy, and Austria, but it was defeated
and no further reform has been carried out. A like attempt
which was made with regard to the refining of spirits met
with the same fate. However, the rate of duty has been
increased considerably in the latter case with very bene-
ficial results to the revenue, the receipts for the year
1889-90 being estimated at ^"6,750,000. Beer is also a
source of revenue, but to a much smaller amount, owing to
the lower rate, and the collection of the duties by the state
governments of Bavaria, Wiirtemberg, and Baden, which
reduces the receipts of the Empire.
German internal taxation is in some respects unfortun-
ately placed. The separate interests of the different
states hinder the most effective forms of duty being im-
posed, but still more the articles to be taxed are specially
important products. Spirits, beer, and sugar, are all ex-
ported, and engage a good deal of the national capital
and labour. Taxation is, therefore, more keenly felt, and
strict supervision by the revenue officials is more injurious.
The treatment of agricultural distilling is a particularly
difficult matter, and one that only admits of a compromise.
Fiscal presumptions, whose operation we have already
noticed l , are employed to escape the cost and trouble of
more exact determination.

The economic and social conditions have, therefore,
prevented as great a development of the modern excise
system in Germany as has taken place in France : the
duties are less productive the total amount from -the
this source for 1889-90 was only 12,800,000 and they
are deficient in just those articles that form the mainstay
of British and French Finance. Tobacco and alcoholic
drinks do not pay what might be expected from them ;
while the sugar duty is far under its real productiveness in
consequence of the expenditure on bounties. The removal
of this difficulty will be one addition to the receipts, and
may be taken at 5,000,000, though production may fall
off somewhat under the new regulations. An increased yield
from tobacco, the end most needing to be accomplished at
present, is to be reached as a monopoly seems impracticable
by a more effective excise supervision. Beer might also be
made to provide a larger revenue than it does at present.
But even if these reforms were realized it is not to be ex-
pected that the revenue could equal that of more favourably
situated countries. A large revenue from taxation of com-
modities implies either extreme rigour in the tax system
or a high standard of comfort in the bulk of the population.
Revenue may be wrung out of the subsistence fund of the
nation, or it may be obtained from its comforts and
luxuries. Neither condition is found in Germany, and
consequently the returns of the indirect taxes are com-
paratively small.

10. The tax systems of other countries repeat with
modifications and new combinations the phenomena already
described. Austria and Hungary derive a good part of
their revenues from this source Salt and tobacco are
monopolized by the State in both countries, and are im-
portant contributories, the net return in Austria being
close on ,7,000,000, in Hungary about 3,700,000. The
drink duties, including spirits, beer, and wine, give
6,000,000 in Austria, and about half that amount in
Hungary. Sugar is also taxed, yielding a revenue of
2,000,000 in Austria, and 300,000 in Hungary. A
cattle tax is another of the forms adopted, but its pro-
ductiveness is small, being less than 1,000,000 for the
two kingdoms. The octroi duties in the larger Austrian
towns are in part taken for the general revenue. In this
way wine, beer, meat, and other articles are made to

The principal duties in Russia are those on sugar,
tobacco, and particularly spirits. The first mentioned is
the smallest; in 1888 it came to 500,000. Tobacco
yielded in the same year 4,200,000, but both were in-
significant in comparison with the amount of 42,000,000
obtained from the taxes on alcohol. This immense sum
shows how the existence of a particular habit may affect
the revenue of a country, and how it is possible under cer-
tain conditions to tax a very poor population. The contrast
with the already noticed cases of Italy and Germany is
very remarkable.

A further point of interest is the method employed in
the collection of these taxes. Tobacco, as in the United
States, is taxed by requiring stamped paper for its sale.
Sugar and alcohol are subjected to a strict supervision at
the factories. Formerly there were monopolies of both
alcohol and tobacco, and the former continued till 1862
when it was abandoned for the present system with satis-
factory financial results in the increase of the yield from
less than 20.000,000 in 1862 to its present amount.

Except in the crisis of war the internal taxation of the
United States has always been very restricted. Hamilton's
attempt to tax whisky (1791) had led to a rebellion, and
the duty was given up, to be again tried during the war
with England (1812-14), and abandoned at its close. From
that time till the outbreak of the Civil War (1861) there
were no duties on domestic goods, not even on spirits. The
war requirements of the Federal Government compelled
recourse to heavy taxation ; in addition to the income tax,
and the customs, an extensive system of internal taxation
was formed. ' Raw cotton was taxed at the rate of

2 cents per pound Salt was taxed at the rate of

6 cents per ico pounds ; tobacco from 15 to 35 cents per
pound ; cigars from 3 dollars to 40 dollars per 1000 ; sugar
from 2 to 3^ cents per pound. Distilled spirits were first
taxed in 1863 at the rate of 20 cents, per gallon ; the next
year 60 cents ; then i dollar 50 cents and subsequently 2
dollars 1 .' Most manufactured .articles were also taxed,
sometimes both in the raw material and on the finished
products, without any attention to the conditions of justice
or productiveness. This very rigorous and on the whole
effective application of taxation did not long survive the
close of the war. By a series of enactments during the
next five years all the duties except those on tobacco and
spirits were repealed. The former, which is carried out by
means of a stamp imposed on the tobacco as manufactured,
has varied between 5,000,000 and 9,000,000 during the
last twenty years 2 . The duty on spirits which has changed
much in amount, being reduced to 50 cents in 1868, and
raised to 70 cents, and then to 90 cents is far more produc-
tive. The amount realized in 1883 was over 11,500,000.
Indian experience of direct taxation of commodities is
confined to the case of salt and spirits. The former article,
which next to land is the most important contributory, is
taxed partly through monopoly, partly by excise. Spirits
are now being placed under excise control at distilleries in
preference to the old farming system. Out of a total of
1 20,000,000 rupees, salt yields two-thirds, spirits and drugs
the remainder.

11. We are now in a better position for examining
some general features of the taxation of goods. Certain
points have been impressed by repetition. One is the /
great prominence of drink duties. England, France,
Russia, and the United States, regard them as the prin-
cipal resource of the revenue. Improvements in the
methods of German taxation will probably bring about
the same result there. This circumstance suggests some
important considerations. The moral difficulty of basing
the financial prosperity of the State on the growing con-
sumption of what is useless, and in many instances injurious,
will be more and more felt in the future. The advocates
of temperance can hardly remain contented with the pre-
sent state of things in which the revenue from drink so far
exceeds other receipts. But the possibility of sweeping
restrictive legislation, extending perhaps to prohibition,
raises the further question of the effect of such measures on
the State's income. A reduction of 50 per cent, in the
duties on spirits and beer would mean a grave deficit in
the English Budget, hardly to be replaced by any readily
available substitutes. A much higher rate of income tax
or a heavy charge on land would probably have to be
tried, perhaps combined with higher duties on tea and fresh
taxation of sugar. The difficulties surrounding any of these
courses need not be dwelt on ; the limits of productiveness
are reached sooner in the case of other indirect taxes, while
an extension of the income or land taxes would involve a
shifting of the present distribution of taxation that would
need the greatest caution before it could be justly applied.
Connected in certain respects with the drink duties is
the tobacco tax, which is so important a resource in France
and Italy and as a branch of the customs in England.
This impost has the advantage of falling on a luxury and
affording a means of taxing the poorer classes who cannot
well be made to contribute directly, but it is also open,
though in a less degree, to the danger of shrinkage through
a change of habits, and is, besides, in common with the
drink duties, hard to levy in countries where the production
is extensively carried on, as a high rate inevitably leads to
illicit traffic.

It is in great part owing to a recognition of these com-
plications that the method of monopoly has been so much
employed. To place the manufacture of an article in the
hands of the State is a strong measure, to be justified only
by very cogent reasons ; but where the need of revenue is
great, this sacrifice of a particular business to secure com-
plete freedom for the others may be desirable. It cannot
be disposed of by an appeal to the principle of non-
interference as a rule peremptorily binding on the State.
The real point to be aimed at is to secure the needed
revenue with the smallest amount of restriction, a result
perhaps best attained through monopoly. This, among
other considerations, has led to the proposals for a State
monopoly of alcohol, which have been brought forward
both in Germany and France, but which have not proved
acceptable in either country. The reasons advanced in
favour of such a measure are weakened by the great extent
of the industry and the elaborate appliances needed for its
proper working. That a State department could with
financial profit undertake the production or sale of spirits
is not likely, though it was confidently believed that this
result could have been reached in Germany 1 . So far as the
evidence goes a rigid excise system appears to be better
both for the industry and the State. The progress of in-
vention is certainly retarded by the routine that State

1 The Swiss alcohol monopoly has given a small profit.
management sets up, and therefore, where it is desirable to
secure the continual development of new processes, pro-
duction should be left to private initiative, and as far as
possible released from surveillance. But whatever be the
form adopted, intoxicating drinks and tobacco must in the
immediate future be the principal resource so far as
indirect taxation is concerned.

Among the other dutiable articles sugar holds a high
place, and if revenue be needed, it is one of the most
eligible objects for taxation, much more so than a necessary
commodity like salt. This latter, again, is a preferable
object to either corn or meat. A fiscal system that in-
cludes all these duties reaches a high degree of harsh-
ness, the addition of duties on raw materials being all
that is necessary to make it attain the maximum in this

The technical operations connected with the levying of
duties deserve some notice. Modern appliances have made
it far easier to gauge the exact product in most taxed in-
dustries ; the strength of spirits or the sweetness of sugar
can be ascertained with great precision by the use of special
instruments, and in other cases similar aids are more or
less available. As a means of checking fraud and stop-
ping that ' leakage ' and waste that has been so prevalent
in the earlier attempts at taxation, they may be regarded
as valuable contributions to Finance. The best devised
duty from a purely economic point of view may fail in.
consequence of technical obstacles. In fact, the application
of taxation is always dependent on a careful observance of
these special circumstances. All the details of a duty are
important in this connexion. Thus, the rate to be im-
posed must be regulated with reference to the intensity of
the demand for the article, the gradations of the several
qualities, and the effective power of testing that exists.
The reasons for the repeal of the English paper and sugar
duties were partly founded on the difficulties of discrimina-
tion : the adjustment of the American spirit duties, in order
to meet the risks of illicit distilling and secure the highest
return, has been shown by Mr. Wells to rest on similar
grounds. The treatment of the different forms of spirits
and beer in Germany has been largely conditioned by
consideration of the effects of different methods of levying
duties on the development of the industries and the re-
ceipts of the State.

Nor is it merely the conditions that exist within the
particular country that have to be considered. With the
modern agencies of transport no community can be re-
garded as an isolated unit. Its methods of taxing com-
modities will be influenced by the economic and fiscal
systems of other countries. Due adjustment ought to be
reached between excise and customs, and the trade rela-
tions with outside producers and consumers should be
carefully studied. The greatest prospect of advance in
financial arrangements probably lies in this direction. To
expect uniform taxation in all European countries would
be Utopian, but there is room for approximation in the
selection of the articles to be taxed, and in the rates of
duty imposed. Thus, the treatment of alcojjol and tobacco
might possibly be made the same in a good many nations,
and thereby the obstruction to industry and risk of contra-
band traffic in great measure avoided. Even at present
the monopoly system,- as regards the latter article, is in
force in France, Austria, Italy, Spain, and some smaller
states, and may possibly be introduced into Germany.
The rule of imposing higher duties on the more intoxi-
cating spirits is now very generally adopted, though there
is room for more complete agreement in both the mode of
taxation and the rates fixed.

Finally, then, while it is evident that the forms and
extent of internal taxes on commodities must depend on
the financial necessities and the particular conditions of each
country, it is also beyond doubt that what is vaguely called
' the progress of society ' must lead to greater uniformity
in both respects, though it would be premature to conjecture what will be the exact form of that common

12. To complete our account of internal taxation it is
necessary to notice its position in local Finance. The
United Kingdom and the American Union are very mark-
edly distinguished from other countries by their freedom
from indirect taxes for local purposes. There have been
some cases of 'ingate' tolls in English and Irish towns,
and the London wine and coal dues were a more important
instance, but with these exceptions internal trade has been
altogether relieved of duties. This freedom of commerce
was according to Adam Smith one of the reasons for the
greater prosperity of the country. The Constitution of
the United States, enforced by the resolute action of the
courts, secured internal free trade over the whole area of
the Union I and prevented the establishment of any local

In continental countries a very different state of things
has prevailed. Everywhere, in one form or another, duties
have been levied on goods entering into cities. These taxes,
which may be traced back to the dues (portoria) imposed
by the cities under the Roman Empire, were adopted by the
communes as a ready means of acquiring funds. So early
as the thirteenth century we find them in force in France,
and their development continued till in the seventeenth
century nearly every town possessed them. The ministers
of Louis XIV saw in this form of tax a valuable resource
for the hard-pressed Finances of the Kingdom, and accord-
ingly a part of the octrois was appropriated for the use of
the State, a system that continued down to the Revolution.
Other countries had the same system ; the German towns
levied duties on the commodities entering within their
walls, and both the Empire and the territory of Brandenburg
derived revenue for their general purposes through the
town taxes 2 .

The abolition of the octrois by the Constituent Assembly,
and their re-introduction a few years later, have been
already mentioned 1 . In other countries the same popular
sentiments and the same pressure of actual facts have
made their influence felt. No form of taxation is more
oppressive on the artisan and small trading classes, and
it has, besides, an indirect effect on the rural producers.
On the other hand, where direct taxation is extensively
employed by the general government, it is hard for local
authorities to devise any less inconvenient form of duty
that will supply an equal revenue. The opposed forces
are seen in operation in the history of octrois in the present
century. There has been a disposition to, as far as possible,
get rid of these troublesome imposts, while at the same
time they continue in several countries as a source of local,
and even of general revenue.

13. France in particular possesses a carefully arranged
system. Municipal Councils are empowered, and in cer-
tain cases compelled, to establish an octroi, which is dis-
tinctly recognised as a tax of consumption. The objects
to be taxed may be food, drinks, fuel, fodder, and materials,
but the power of taxing is limited by restrictions, which
exclude articles already heavily taxed by the State or
monopolized by it. Octrois on intoxicating drinks are spe-
cially regulated so as to bear a proportion to the general
taxation of those objects 2 .

The system applies to 1523 communes, or about one in
twenty-four of the entire number ; but as it includes all the
large towns, its operation directly affects one-third of the
population (12.500,000). The greater number of communes
(887) raise the duties themselves. State-officials manage
over 250, and 400 are farmed out at a rent. The city of
Paris has a special regime ; which extends to the outlying
communes and is administered by the Prefet of the Seine.
A considerable revenue is obtained from this source. In
1889 it amounted to 12,000,000, a little over one-half of

which was raised in Paris. This amount is an increase
over earlier years. From less than 2,500,000 in 1823 ^
had risen to 3,800,000 in 1853, and nearly 8,000,000 in
1872. This growth is due to the larger population of the
towns and their improved condition 1 .

The Italian octroi duties in their present rigorous form
only date from 1864: some of the smaller States had used
them, but Sardinia and Tuscany were comparatively free 2 .
Since the first measure on the subject several further orders
and decrees have extended the system, until it has come
to be productive of a large revenue as well as extremely
oppressive. Without again considering that part of the
duties which goes to the general revenue 3 , it appears that
in addition to further charges on the articles already taxed
by the state .octroi) there are duties on a large number of
goods arranged into the same categories as in France, with
an extra division for colonial produce. The result is that,
in contrast with the French duties, foreign goods already
submitted to customs taxation are taxed over again on
their entry within the ' closed ' communes, and that both
the cost of living and the distribution of industry are
injuriously affected. The duties vary according to the

1 The distribution of the duties among the different articles is shown by the
following figures for the year 1889

Francs. Percentage of total.


8. 7

Drinks and Liquids .



85,09 ,337



Fodder .




Miscellaneous .


Total 299,663,976 100-0

Of the total on drinks, 73,500,000 francs were levied on wine, 26,000,000
francs on spirits, and 17,250,000 francs on beer. Meat paid 56,000,000 francs,
or two-thirds of the total on food. The cost of collection hi 1889 came to about
1,000,000, which should be deducted from the gross receipts of 12,000,000.
population of the town, and are levied on sales in the 'open'
or rural districts. The revenue received by the Italian
communes from these taxes in 1884 was ^"4,400,000, which,
taken together with the part that goes to the central
Government, represents a much heavier burden than that
imposed in France by the same class of duties. A complete
separation between the tax systems of the general and local
governments would seem desirable, and might be accom-
plished either by the exchange of the state octrois for the
local direct taxes, or better still by a complete reform of the
methods of indirect taxation.

The various German States have gradually reduced their
indirect local taxation. Some German towns retain the
octrois as a supplemental resource. In Bavaria this method
is adopted, but the list of articles is not at all so extensive
as either in France or Italy. North Germany is for the
most part free from octrois^ though a beer duty is levied, as
e.g. in Berlin. In any case this form of taxation is of
minor importance for the German cities. Austria and
Hungary use the octroi system more extensively; some
of the funds obtained in this way are taken for the central
Government, and the local taxes appear as additions to
these state charges 1 .

More radical measures have been applied in some other
countries. Belgium, as we saw 2 , abolished these taxes in
1860, and was followed by Holland in 1866, and by Spain
in 1868, though the last-named country had soon to return
to the old method. Denmark and Switzerland are practi-
cally without octrois, which are also of little importance
in Portugal and Sweden 3 .
14. When considering the general principles of indirect
taxation, we concluded that its employment in local Finance
was objectionable, and certain to disappear under the influ-
ence of sounder ideas on the subject of taxation. The fact
that so many countries can successfully manage their muni-
cipal administration without recourse to indirect taxes is of
itself a strong point against their continuance. They have
the unfortunate peculiarity of combining the defects of
customs and excise duties ; for they hinder trade between
town and country and impose heavy pressure on urban
industries and consumers. Thus the materials for house-
building are taxed both in France and Italy ; the ordinary
articles of the labourer's consumption are compelled to pay
toll before they reach him, and so are many of the mate-
rials on which he works. Inequality of distribution is '
another glaring defect in the octroi system, which varies in
its incidence from place to place and between different
classes. The one valid argument in its defence is the plea
of necessity. To surrender 11,000,000 of the French
communal revenue would be a hazardous step until an
assured equivalent was provided. This is the problem
that reformers have to face, and the usual proposal has
been the introduction of direct local taxes as a substitute.
The difficulty of this plan lies in the resistance that most
of the communes would offer to it. M. Leon Say's more
fundamental method would alter the existing relations of
the general and local governments, and place the direct
taxes at the disposal of the latter, giving them at the same
time increased functions 1 . Another, and perhaps more
feasible proceeding would be to follow the Belgian prece-
dent, and pay over a part of the general indirect taxation
to the communes in lieu of octrois. One important con-
sideration indicated by M. Say is the distinction between
the fifty towns having over 30,000 inhabitants, whose net
revenue from this source is 9,000,000, and the remaining
1470 communes that gain only 2,000,000. It is obvious
that the latter class might easily replace their indirect
taxes by additions to the contributions directes. Even the
remaining towns when Paris with its net receipt of
^5,600,000 is deducted ought to be able to furnish the
3,400,000 that would be needed by a development of the
general taxation of spirits.

The case of Italy is a harder one ; though the burden of
the duties is greater, so is also the need of revenue ; and thus
for the present it seems that reform rather than abolition
is advisable. Exemption of the materials of industry, low
rates on articles of necessary consumption, together with
greater uniformity in the different tariffs, might be carried
out with advantage to the revenue ; and these measures
would prepare the way for further reforms.

15. The last question that has to be discussed is that
of the incidence of taxes on consumption. Everyone is
familiar with the proposition that they fall on the consumer
and are intended to be a deduction from his income when
he comes to employ it. It, however, appeared that the
process by which taxes are shifted is not so simple or
uniform as this statement assumes l . That ultimately and
' in the long run ' the bulk of the taxation of commodities
falls on the general body of consumers is undoubtedly true,
but this is in fact the case with a general income-tax,
which arrests the funds previously to their expenditure.
But before we assert that a tax on a particular commodity
comes out of the pockets of the consumers of that com-
modity, we must be satisfied of three things, viz. (i) that
none of the burden remains on the producer who pays the
tax immediately, (2) that none of it is thrown back on
other producers or owners of land or capital who contribute
to the production, and (3) that the consumer has no way of
passing on the burden to another set of persons. The
realization of these conditions is not always found. In
some cases the producer has a complete or qualified
monopoly, or more accurately a differential advantage,
and when this is so he bears the burden in whole or part.
Again, the limitation of demand caused by taxation leads
to a lower value of land or fixed capital or specialized
labour suited for the industry, in which case some of the
loss falls on the particular agent so affected. Finally, and
this fact has been even exaggerated in the * orthodox '
theory of incidence, the additional cost of living may lead
to a higher rate of wages, which must inevitably lower
interest or employers' gain, unless indeed it is limited to
certain groups of workers, when the consumers of their
products may bear the burden.

Applying these general facts to existing tax systems, it is
an interesting question to consider how far the abolition of
the present English excise would (a) increase the profits of
brewers and distillers as well as retail traders, (b] allow of
higher prices for barley, hops, sugar and other materials of the
kind, or (c) cause a lowering of wages in consequence of the
smaller drink bill of the labourer and artisan. That each
of these effects would in some degree be produced is, we
believe, indisputable ; but so much depends on conditions
that cannot be even approximately estimated, that it would
be impossible to offer a conjecture as to their relative
strength. The effect on other industries through the
sums set free from the purchase of drink, or the increased
labour and capital required in the distilleries and breweries
if the total expenditure on drink remained as before, would
be a further puzzle. Now, if the remission of these duties
would produce such effects, it is unquestionable that the
development of the modern excise has caused, not perhaps
quite the same, but quite as complex and important
changes. When we take as financiers and statisticians
too readily do the actual distribution of taxation as a
guide to its real effects, we should never forget the far more
intricate problems that the working of a set of taxes
imposed on a complex economical system is sure to

If this be true of the very simple and easily examined
excise of England it holds good with still greater force of
the more elaborate systems of France, Germany, and Italy.
Where several articles are taxed the effects are sure to
become intermixed ; e. g. a duty on sugar tends to combine
with duties on breweries where that article is used as a
material. Especially where taxation is different in different
cases we may expect complicated results ; the heavier duty
on wines entering French towns is surely an element in the
cost of living, and probably in the wages of the workmen
residing in them, and hence on the price of the goods pro-
duced in such places, while this altered price may cause
a redistribution of industry.

The octrois exhibit some of the best examples of the
practical existence of these at first sight far-fetched posi-
tions. One of the arguments of the defenders of local
taxation of commodities is that their incidence is not really
on the consumer, who would not benefit by their abolition.
It is pointed out that in many cases the reduction or re-
moval of the town barriers has not lowered prices. The
gain is reaped by the producer or trader 1 . So far as this
argument has any truth it illustrates the proposition that we
have already laid down, though it is hardly a good defence
of the system 2 . In like manner it has been argued that
the Italian octroi system has compelled manufacturers to
establish their industries in agricultural districts where the
cost of subsistence is not artificially enhanced 3 . But what
is apparent in the limited sphere of local taxation must be
equally operative, though its influence is harder to trace, in
the wider field of state economy.

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