Definition
Tax Incidence
Who actually bears the economic burden of a tax, regardless of who legally pays it.
Definition
Who actually bears the economic burden of a tax, regardless of who legally pays it.
Why It Matters
The legal payer of a tax is not necessarily the economic bearer of its cost. Incidence analysis reveals the real distributional effects of taxes and subsidies — which often differ strikingly from political narratives.
Policy Example
Tariffs are paid by importers, but their burden falls on whoever has less price elasticity: in most cases, consumers and downstream manufacturers absorb most of the cost. Politicians who claim tariffs make foreigners pay for American benefit are describing the legal incidence, not the economic incidence.
In Context