Full text: What is New Since Keynes?

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3.A further new element in our situation is the vast increase 
in public spending and tax revenue as a p.c. of G D P 
which in most industrial countries now ranges between 
40 and 50 p.c. This increase has probably been a major 
reason for the political backlash against the welfare state. 
Herbert Stein states in his book The fiscal revolution in 
America that the fear of increased taxation is the main 
reason for business oppostion against budget deficits 
and against Keynesian policieis^ The increased taxation 
reduced the incentive for enterprise and for work. 
As far as the incentive to invest was concerned it was 
to be stimulated by tax allowances. Bxx&skxiaxaixHH 
akxlsaxi; Profit taxes have been reduced in the course of time 
putting more weight on indirect taxes, and taxes on mass income 
This tended to give the budgets an inflationary bias. 
r~The aTTitude of business to taxation is clear. It must be 
realised,however,that high marginal taxation has two very 
contradictory aspects from the point of view of business: 
On the one hand there is the automatic stabilisation which 
means that any adverse influence coming for example from 
exports hits profits less to the extent to which it is 
cushioned off by the budget. This applies also to the 
effects of a fall in private investment. 
On the other hand there is the weakening of incentive. 
One aspect of it is - the mirror image of the above case- 
that any increase in business investment will be fed back 
only to a small extent into profits: that means that 
the automatic self perpetuation of a boom is drastically 

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