Tax incidence

A term for where the burden of tax actually falls, as opposed to liability in law. Tax a company and the cost will be passed on to its shareholders (via lower dividends), its customers (via higher prices) or its workers (via lower wages). The chain can be complicated; sales taxes may be paid by consumers but if the result is lower demand, that may hit the profits of retailers. Sometimes referred to as the “effective” incidence of a tax, in contrast to its “formal” incidence. For more on the distinction, see this article.