Question

The incidence of the tax pertains to

A. the degree to which it alters the distribution of income.
B. how easy it is to evade the tax.
C. whether the tax is part of the Federal, state or local tax structure.
D. the progressiveness or regressiveness of tax rates.
E. who actually bears the burden of a tax.

Answer 1

The incidence of tax refers to who bears the burden of a tax, and it is determined by analyzing the elasticity of demand and supply for a taxed good or service. In cases of inelastic demand like with cigarettes, consumers end up bearing most of the cost.

Step-by-step explanation:

The question you've asked, "The incidence of the tax pertains to who actually bears the burden of a tax," focuses on understanding the concept of tax incidence. Tax incidence refers to the analysis, or manner, of how the burden of a tax is divided between consumers and producers of a taxed good or service. It is a crucial aspect of tax policy as it affects how taxes influence the economy and social outcomes.

Elasticity plays a significant role in determining tax incidence. For example, if demand is inelastic, as with cigarette taxes, the tax is less likely to reduce consumption and is more likely to be passed on to consumers, resulting in higher prices for them.

This means the incidence or burden of the tax mainly falls on consumers rather than producers. Thus, to predict who will bear the greatest burden of a tax, one must examine the elasticity of both demand and supply in the market.