Due to capitalization,the burden of future taxes may be borne by current owners of an inelastically-supplied,durable commodity such as land.

Question

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Capitalization refers to the process of converting future income streams into present value, meaning that the value of an asset such as land is based on the expected future income it will generate. If future taxes are expected to increase, the present value of the land will decrease, leading to a decrease in its price. The burden of this decrease in value will be borne by current owners, as they will receive less money when they sell the land. Since land is inelastically supplied, the supply cannot be easily increased to meet the demand, which means that current owners are likely to bear the burden of future taxes on the land.

Due to Capitalization,the Burden of Future Taxes May Be Borne