What Is The Incidence Of Tax?

The tax incidence measures how much tax is actually paid by whom. In this study, tax policies are analyzed in order to determine how price changes will affect consumers or producers, as a result of new tax policies.

• Market tax incidence refers to how taxes are distributed between buyers and sellers.
• It largely depends upon the price elasticity of demand and supply.
• In the case of elastic goods(which people purchase but are not out of necessity), the tax burden is faced by the suppliers.
• Similarly, in the case of inelastic goods(which people purchase out of necessity), the tax burden is faced by the consumers.