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Home Public Revenue and Taxation Impact and Incidence of Taxation


Impact and Incidence of Taxation:


Definition of Incidence of Tax:


One of the very important subject of taxation is the problem of incidence of a tax. By incidence of taxation is meant final money burden of a tax or final resting place of a tax. It is the desire of every government that it should secure justice in taxation, but if it does not know as to who ultimately bears money burden of a tax or out of whose packet money is received, it cannot achieve equality in taxation. If government knows who pays tax, it can evolve an equitable tax system. It can easily tap important sources of taxation and thus can collect large amount of money without adversely affecting economic and social life of the citizens of the country.


Definition of Impact of Tax:


Impact of a tax is on person from whom government collects money in first instance. While incidence of a tax is on person who finally bears burden of a tax.




To make it more clear, we take an example. Suppose government levies a tax on electric goods in USA. Tax will be paid to Government in first instance by manufacturers of electric goods. Impact of tax is, therefore, on them. If manufacturers of electric goods industries add tax to price and succeed in selling goods at higher prices of electric goods to consumers, burden of tax is thus shifted on to consumers.


Incidence is Different From Shifting:


Incidence is final resting place of a tax while shifting is process of transferring money burden of tax to someone else. Shifting finally ends in incidence. When a person on whom tax is levied tries to shift tax on to the other, he may succeed in shifting tax completely, partly, or may not succeed at all. Shifting of tax can take place in two directions, forward and backward. If tax is shifted, from seller to consumer, it is a case of forwarding shifting.


Backward shifting takes place when consumers do not purchase commodities at increased prices. Sellers are! then forced to cut down prices and bear burden of tax themselves. Backward shifting is thus performed by buyers.


Incidence and Effect of a Tax:


Before we proceed further it seems necessary that we should distinguish the concept of incidence from effect. As stated earlier incidence is direct money burden of a tax. Effect of taxation is repercussions or consequences! of imposition of a tax on individuals and on community in general.

Relevant Articles:

Sources of Public Revenue
Types of Taxes
Canons/Principles of Taxation By Adam Smith
Essentials/Features/Characteristics of a Good Tax System
Theories of Taxation
Proportional Versus Progressive Taxation
Taxable Capacity
Impact and Incidence of Taxation
Direct Tax and Indirect Tax
Diffusion Theory of Taxation

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money

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