The term tax incidence refers to the: A. division of tax between federal and local government B. level of tax levied on a buyer of a good C. division of the tax burden between buyers and sellers D. division of income tax between high-income and low-income earners
Question
The term tax incidence refers to the: A. division of tax between federal and local government B. level of tax levied on a buyer of a good C. division of the tax burden between buyers and sellers D. division of income tax between high-income and low-income earners
Solution
The term tax incidence refers to the: C. division of the tax burden between buyers and sellers. This concept is used in economics to understand who ultimately bears the burden of a tax. It may not necessarily be the entity that physically pays the tax, but rather who bears the cost in the form of higher prices (for buyers) or lower revenue (for sellers).
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