Ricardian debt / taxation equivalence in the Kaldor theory of profits and income distribution

Abstract

A well-known characteristic of Nicholas Kaldor's theory of income distribution (and of the related Cambridge Theory of the rate of profits) is that any tax imposed on profits is shifted on to wages, in analogy (but with a reversal of the causation chain) with David Ricardo's theory of income distribution, in which any tax imposed on wages is shifted on to profits. The present paper explores the conditions under which the same property holds when government expenditure is financed by a budget deficit, and the conclusion is reached that such conditions coincide with those that assure Ricardian equivalence between public indebtment and taxation. Copyright 1989 by Oxford University Press.