228 MULTIPLE PURPOSE RIVER DEVELOPMENT 



per cent would be passed on to wage and salary earners. ^^ Our 

 estimates of the regional incidence of the change in taxes, given 

 the characteristics of this tax model, are given in Table 45. 



Starting with that half of the change in taxes which is assumed 

 to be distributed among corporations, what proportion of the 

 affected profits accrues to the residents of each region? To deter- 

 mine this, we assume that profits either are distributed as dividends 

 or, if retained in the enterprise as undistributed profits, will con- 

 tribute commensurately to the value of the enterprise and, accord- 

 ingly, will appear as gains to equity shareholders. Therefore, we 

 assume that the distribution of total dividend receipts in the 

 property income component of regional personal income reflects 

 the distribution by regions of the profits affected by this tax change. 

 Using the per cent distribution of total dividends among regions 

 as weights,-^ we determine the change in taxes for 55 per cent of 

 that half of the tax change which affects corporate profits. 



Next, we consider the distribution of that part of the change in 

 corporate taxes which is passed on to consumers. We assume that 

 the incidence of this part of the change is proportional to con- 

 sumption by regions, and that the latter is proportional to income. 

 This may appear to imply a uniform average propensity to con- 

 sume among regions, irrespective of the differences in regional per 

 capita income. Actually, this is more apparent than real, as the 

 change in taxes affecting consumers via the corporate profit route 

 has both an income and a price effect, which operate to offset in 

 part some of the objections to the proportionality assumptions.^^ 



"R. A. Musgrave, J. J. Carroll, L. D. Cook, and L. Frane "Distribution of 

 Tax Payments by Income Groups: A Case Study for 1948," National Tax 

 Journal, March 1951, p. 16. 



'"The dividend component of property income by states was obtained from 

 unpublished data provided by the National Income Division, U. S. Department 

 of Commerce. 



=" Although this assumption may not seem realistic at first blush, it is none- 

 theless a useful working assumption. A reduction (or an increase) in prices 

 effects an increase (or a decrease) in real income proportional to consumption. 

 With a national average propensity to save of about 7.5 per cent, an average 

 propensity to consume of 95 per cent in the lower-income regions and 90 per 

 cent in the higher-income regions would appear to mark the outer boundary 

 of the regional variation. A variation of five over ninety would produce a 

 discrepancy of only about 5.5 per cent. And this percentage of that one-third 

 of the half of the change in taxes, related to the shifting of corporate profits 



