Incidence of Taxes

Research Report

Incidence of Taxes

From The Encyclopedia of Taxation and Tax Policy

Abstract

One of the most fundamental questions addressed by public finance economists is that of who bears the final burden of a tax. The basic issue is that tax-induced changes in individual and firm behavior and the associated changes in commodity prices and factor returns are likely to imply that the final burden or "economic incidence" of a tax will be different from its "statutory incidence" - that is, a tax may be partially or fully "shifted" from one set of economic agents to another. The most common methods to analyze the incidence of taxes are partial-equilibrium analysis, static general-equilibrium analysis, dynamic general-equilibrium analysis, and empirical incidence analysis.

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