ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -tax incidence, the distribution of a particular tax’s economic burden among the affected parties. It measures the true cost of a tax levied by the government in terms of lost utility or welfare.

Detailed explanation-2: -Under perfect competition tax incidence, i.e. the burden borne by consumers relative to that by producers, is determined by the interplay between elasticities of demand and supply. The more inelastic demand is relative to supply, the larger is tax incidence.

Detailed explanation-3: -progressive tax-A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax-A tax that takes the same percentage of income from all income groups. regressive tax-A tax that takes a larger percentage of income from low-income groups than from high-income groups.

Detailed explanation-4: -What determines tax incidence? The tax incidence is determined by the price elasticity of supply and demand of a product. If the demand is more elastic than the supply, customers have to bear the high end of the tax burden and vice versa.