Lecture 5.2: Tax incidence

Question 1

Tax Incidence

Answer 1

Study of the effects of tax policies on prices and the welfare of individuals

Question 2

Statutory incidence

Answer 2

Amount of tax paid bu the party sends the tax to the government

Question 3

Economic incidence

Answer 3

the burden of taxation as measured by the change in resources available to any economic agent as a result of taxation

Question 4

Tax incidence extensions

Answer 4

• labour markets and tax incidents: A similar analysis can be conducted in the labour market context i.e. imposing taxes on labour income, to be paid either by employer or employee – same rules of incidence hold
• partial vs general equillibrium tax incidence
  Partial equilibrium tax incidence: Analysis that considers the impact of a tax on one
  market in isolation (as above)
  General equilibrium tax incidence: Analysis that considers the effects on related markets of a tax imposed on one market
• in monopoly and oligopoly

Question 5

Difference-In-Difference method (DD)

Answer 5

Method to assess causal effects of policy changes.
T = treatment group
C = control group

Question 6

Results of Tax incidence (3)

Answer 6

1. statutory incidence does not describe who really bears the burden of tax
2. side of market in which tax is imposed is irrelevant to distribution of tax burden
3. parties with inelastic supply or demand bears taxes: parties with elastic supply bear less of burden

Question 7

Full shifting

Answer 7

When one party in a transaction bears all of the tax burden