Tax incidence or incidence of tax is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. Tax incidence can also be related to the price elasticity of supply and demand.
Tax incidence is the effect a particular tax has on the two parties of a transaction, the producer that makes the good and the consumer that buys it.
For example, the government may levy a tax on gasoline sales, typically a certain amount per gallon. Initially, that tax falls on the retail seller of gasoline, who is responsible for remitting tax receipts. Therefore, the statutory incidence is on the retail seller.
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