Deciding whether the ultimate burden of a tax lies on workers, consumers, or firms is called:
A) public interest theory.
B) rational choice theory.
C) tax incidence analysis.
D) budget analysis.

Question

Quizplus · Accepted Answer

Tax incidence analysis helps in identifying who bears the ultimate burden of a tax. It takes into account the elasticity of demand and supply for the good on which tax is imposed. If the demand for a good is inelastic, the burden of tax will mostly fall on consumers, while if the demand is elastic, firms will bear the brunt of the tax. Therefore, tax incidence analysis is the most appropriate approach to determine the burden of tax on workers, consumers, or firms.

Deciding Whether the Ultimate Burden of a Tax Lies on Workers