Tax incidence
Definition. Tax incidence is the way in which the burden of an indirect tax is shared between consumers, who pay through a higher price, and producers, who receive a lower net price after paying the tax. The split depends on the relative price elasticities of demand and supply.
The burden falls more heavily on the side that is less price elastic. When demand is more inelastic than supply, consumers bear the larger share of the tax.
This term belongs to Indirect Taxes and Subsidies in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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