Example of tax incidence. Dalton distinguishes between incidence and effects of taxation by putting that incidence are the direct money burden of a tax while its effects are the indirect money burden. The tax incidence depends upon the relative elasticity of demand and supply. The consumer burden of a tax increase reflects the amount by which the market price rises. For example, an indirect tax’s burden is fall on the consumer. A carbon tax is also an indirect tax. Indirect taxes are a form of government intervention in markets.

Examples include duties on cigarettes, alcohol and fuel and also VAT. However, …

In the case of a direct tax, the taxpayer is the person who bears the burden of it.Conversely, in the case of an indirect tax, the taxpayer, shifts the burden on the consumer of goods and services and that is why the incidence falls on different persons.Come, let’s take a read of the article, which gives you a clear understanding of the difference between a direct tax and indirect tax. The producer burden is the decline in revenue firms face after paying the tax.

(f) Market form: Another factor determining the incidence of taxation is the market form. If the consumer is unresponsive, and PED is inelastic, the burden will fall mainly on the consumer.

ADVERTISEMENTS: Mrs. Ursula Hicks, on the other hand, talks of formal and effective incidence of a tax.

Tax incidenceThe relative burden, or incidence, of an indirect tax is determined by the price elasticity of demand (PED) of the consumer in response to a price rise. In the diagram on the left, demand is price inelastic. (e) Nature of tax: The incidence of taxation will definitely depend on the nature of tax.

An indirect tax is imposed on producers (suppliers) by the government.



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