The statutory incidence of a tax is the same as the economic incidence of a tax whenever a tax is levied on a side of a market that is perfectly price-inelastic.

Question

Quizplus · Accepted Answer

When a tax is levied on a side of a market that is perfectly price-inelastic, the suppliers or consumers cannot adjust their behavior in response to the tax, and therefore, the entire burden of the tax falls on that side of the market. In this case, the statutory incidence of the tax (i.e., who is legally responsible for paying the tax) and the economic incidence of the tax (i.e., who actually bears the burden of the tax) are the same. Thus, the statement in the question is true.

The Statutory Incidence of a Tax Is the Same as the Economic