Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

(C) 
Musgrave‟s Concept of Incidence
Musgrave considers the problem of incidence of taxation as 
a part of broader problem of economic result of a particular budget 
policy. According to him, the three important aspects of economic 
change due to a specific change in budget policy are (i) incidence, 
(ii) resource transfer and (iii) output. 
(i) 
Incidence: Musgrave considers that changes are 
brought about in the economic equilibrium by a change in 
the budget policy, which may be termed as incidence of 
budget policy. 
(ii) 
Resource transfer: It refers to distributional changes 
caused by changes in budgetary policies that involve 
resource transfer i.e. transfer of resource from private 
use to public use. 
(iii) 
Output effects: It refers to change in the level of output 
or real income as a consequence of changes in budget 
policy. 
Musgrave states that the incidence or distributional change 
has direct bearing on the level of output in an economy. He finds 
that distributional changes may take place due to changes in tax 
policy, or expenditure policy or in both. He lays down five forms of 
incidence relating to allied changes, namely: (a) specific tax 
incidence, (b) differential tax incidence, (c) specific expenditure 
incidence, (d) differential expenditure incidence, and (e) balance-
budget incidence. 
(a) Specific tax incidence: It can be observed in the 
resulting change in the distribution on income available 
for private use on account of changes in tax rate policy, 
keeping the public expenditure unchanged. 
(b) Differential tax incidence: By keeping a balanced-
budget operation in mind and examine the different 

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aspects of alternative taxes, the distributional changes 
caused by tax substitution may be named as the 
differential tax incidence. 
(c) Specific expenditure incidence: By keeping the tax 
policy constant, resulting the distributional effects on 
account of changes in the rate of public expenditure are 
described as specific expenditure incidence. 
(d) Differential expenditure incidence: By keeping tax 
function constant and examining the changes in 
expenditure policy and by considering the resulting 
effects on the distribution of income and resource 
allocations, such distributional changes are termed as 
differential expenditure incidence. 
(e) Balance budget incidence: When it is consider changes 
in the level of resource transfer or real expenditure, along 
with a change in tax functions, the resulting changes in 
distribution of income available for private use is 
described as balanced-budget incidence.