Question

What does the term 'incidence of taxation' suggest about?

• A. The rate of taxation is high.
• B. The one who bears the ultimate money burden of the tax.
• C. The one who is immediately responsible to pay the tax.
  
• D. The effect produced by the tax.

Answer 1

Answer: (B)

The one who bears the ultimate money burden of the tax.

$\Rightarrow$ Incidence of tax (or Tax incidence ) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers.

$\Rightarrow$ Tax incidence can also be related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden falls on the buyers.

$\Rightarrow$ If demand is more elastic than supply, producers will bear the cost of the tax.

$\therefore$ From the given options incidence of taxation suggest about the one who bears the ultimate money burden of the tax.