Capitalism and democracy in the 21st century: a Kaleckian interpretation of a Schumpeterian problem

The paper reinterprets Schumpeter's views on the dynamic effects of taxatio n, as originally expressed in CI isis of the Tax State, from a Kaleckian pe rspective. In light of Schumpeter's rejection of Keynesian and Marshallian approaches to taxation, the paper argues that a recently developed Kaleckia n approach provides an appropriate basis from which to analyse the effects on the business cycle of balanced changes in the structure of taxation. It is shown that, under certain shifting assumptions, increases in the taxatio n of wages or profits will stimulate investment and attenuate the amplitude of the business cycle. Ultimately, the shifting of taxes reduces to a conf lict over income shares. The changing distribution of income in the United Kingdom in recent years suggests that investment is likely to remain sluggi sh unless there is a significant reversal of income shares. This may give r ise to increasing economic and political tensions into the 21st century.