If corporations maximize profits, the short-run incidence of a tax on its profits will be borne by:

Question

Quizplus · Accepted Answer

If a corporation maximizes profits, the incidence of a tax on its profits will likely be borne by the corporate shareholders in the short run, as they receive a smaller share of the profits. This can lead to a decrease in stock prices and dividends. Consumers may ultimately bear some of the cost in the long run if the corporation chooses to pass on the tax in the form of higher prices or reduced product quality, but the immediate impact is on the shareholders. All investors and workers may also be affected indirectly, but not necessarily in the short run.

If Corporations Maximize Profits, the Short-Run Incidence of a Tax