When taxes are imposed on citizens it has both incidence and impact on the tax pay Sometimes the incidence of tax is fully or partially borne by the producer while in some instances, this is shifted fully or partially to the consumer. What determine the

The incidence of a tax refers to the ultimate economic burden of the tax, which may differ from the statutory burden (who it is levied upon). The distribution of the tax burden between producers and consumers is influenced by several factors, including:

**Price Elasticity of Demand**: If the demand for a good or service is inelastic (i.e., consumers are not sensitive to price changes), producers can pass a larger portion of the tax onto consumers through higher prices. Conversely, if demand is elastic (i.e., consumers are sensitive to price changes), the burden will fall more on producers, as they may lose significant sales if they raise prices.

**Price Elasticity of Supply**: Similarly, if the supply of a good is inelastic, producers have less flexibility to change production in response to tax increases and may bear a larger share of the tax burden. If supply is elastic, producers can more easily adjust to the tax without significantly impacting their quantity supplied.

**Market Structure**: The level of competition in a market affects tax incidence. In a highly competitive market, producers have limited ability to raise prices, so they may bear more of the tax burden. In contrast, in a monopolistic market, the monopolist has more power to pass costs onto consumers.

**Nature of the Tax**: The specific characteristics of the tax, such as whether it is a sales tax, excise tax, or income tax, can influence incidence. For instance, indirect taxes (e.g., sales taxes) are more likely to be passed on to consumers than direct taxes.

**Consumer Preferences**: The extent to which consumers value the good or service and their willingness to pay can affect incidence. Strong brand loyalty or lack of substitutes may allow producers to pass more of the tax burden onto consumers.

**Substitutability**: The existence of close substitutes influences how easily consumers can switch to other products if the price of the taxed good increases. If many substitutes are available, the burden of the tax will likely fall more on producers.

**Time Horizon**: Over the short term, producers may absorb more of the tax incidence due to fixed costs and limited ability to adjust prices. In the long run, both producers and consumers may adjust their behavior, leading to a different distribution of the tax burden.

**Income Effects**: The effect of taxes on consumer income and spending can also play a role. For example, taxes that significantly reduce disposable income may lead to reduced overall demand, impacting how much tax can be passed through to prices.

In summary, the bearer of tax incidence is determined by the interplay between demand and supply elasticities, market structure, the nature of the tax, and consumer behavior, among other factors. These elements collectively shape how the burden of a tax is distributed between producers and consumers.