On the ricardian theory of taxation and neutrality of money

Abstract

This article critically evaluates Ricardo's contributions to the theory of taxation. It begins with an
analysis of taxes on income flows, where the main focus is on the incidence of taxation on profits. We
examine two circumstances of taxation on profits, when gold (the money commodity) is produced inside a
country, and when it is imported. Contrary to Ricardo, the analysis shows that money continues to be
neutral in the presence of taxation on profits. The article continues with an investigation of the effects of
taxation on commodity flows. We conclude that although some results of Ricardo's analysis are questionable,
nevertheless, his bold method of analysis together with his conceptualization of taxation as an
integral part of long run prices sheds new light on current tax problems.