Answer to Question #91275 in Macroeconomics for Gurwinder Kaur

Question

How to calculate economic incidence of tax for worker and employer? What is the formula?

Answer 1

Tax incidence refers to how the burden of a tax is distributed between firms and consumers (or between employer and employee). The tax incidence depends upon the relative elasticity of demand and supply. The consumer burden of a tax increase reflects the amount by which the market price rises. The producer burden is the decline in revenue they get after paying the tax.