In classical macroeconomic models with flexible wages and prices, whether a tax is levied on producers or consumers does not affect itsultimate incidence. If wages or prices are rigid in the short run, however, then shifting a tax from one side of the market to the othermay have real effects....

The author considers a model in which the threat of customer departures induces sellers to supply high-quality goods. Permanent attachment of buyer and seller such that transactions take place inside a firm raises the social cost of delivering high quality. Yet, such costly integration is often...