burden of taxation

Tax incidence refers to how the economic burden of a tax is distributed among affected parties. It measures the true cost of a tax in terms of lost utility or welfare. The initial, or statutory, incidence is the legal obligation to pay the tax, while the final, or economic, incidence is the actual burden on society's economic welfare.1

For example, a gasoline tax initially falls on the seller (statutory incidence), but they often pass it on to consumers through higher prices (economic incidence). This shifting can be forward (to consumers) or backward (to producers through lower wages or prices for raw materials). Sometimes, a tax isn't shifted at all, or its burden is incorporated into the value of long-term assets, a process called tax capitalization. Determining the exact incidence can be complex, as taxes may be partly borne by the taxpayer and partly shifted, influenced by market forces, availability of substitutes, and the breadth of the tax base.12