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In this example, consumers bear the entire burden of the tax—the tax incidence falls on consumers. On the other hand, if the apple farmer is unable to raise prices because the product is price elastic, the farmer has to bear the burden of the tax or face decreased revenues—the tax incidence falls on the farmer.
The flypaper theory of tax incidence is a pejorative term used by economists to describe the assumption that the burden of a tax, like a fly on flypaper, sticks wherever it first lands. Economists point out several flaws with the assumption: [citation needed] it ignores the elasticity of goods; and
Tax incidence is included in the JEL classification codes as JEL: H22. Pages in category "Tax incidence" The following 20 pages are in this category, out of 20 total.
Tax incidence of indirect taxes is not clear, in fact, statutory (legal) incidence in most cases tells us nothing about economic (final) incidence. [9] The incidence of indirect tax imposed on a good or service depends on price elasticity of demand (PED) and price elasticity of supply (PES) of a concerned good or service. In case the good has ...
Benefit incidence studies typically find spending on health, education and transfer payments to be strongly progressive, while finding mixed results on tax progressivity in different countries. In some countries, official government agencies produce official studies of fiscal incidence to assist lawmakers in the design of tax and spending policies.
In the pre-tax equilibrium the distance equals $5.00 x 0.20 = $1.00. This burden of the tax is again shared by the buyer and seller. If the new equilibrium quantity decreases to 85 and the buyer bears a higher proportion of the tax burden (e.g. $0.75), the total amount of tax collected equals $1.00 x 85 = $85.00.
Some people may move out of the work force (to avoid income tax); some may move into the cash or black economies (where incomes are not revealed to the tax authorities). [citation needed] For example, in Western nations the incomes of the relatively affluent are taxed partly to provide the money used to assist the relatively poor.
The statutory incidence of a tax falls on the party, producers or consumers, that has to physically send a check to the government in the amount of a tax. [3] For example, if a person directly pays his or her income tax to the government [ 4 ] (with no employer withholding), the statutory burden would fall on consumers.