Who actually ends up paying all these taxes that governments We should not assume that the people or firms that send the tax revenues to the government will end up paying that tax; Just because the oil company sends the gasoline-tax receipts to the Treasury does not mean that the taxes come out of the profits of the oil company. Businesses may be able to shift the tax “forward” onto their customers by raisin their I’rice by the amount of the tax. Or they may shift the tax “backward” onto their suppliers (owners of’ labor land. and other factors), who find themselves with lower wages, rents. and other factor prices than they would have enjoyed had there been no tax.

We might want to know the’fiscal incidence of the government tax and transfer system as a whole. Fiscal incidence examines the impact of both tax and expenditure programs on the incomes of the population. Fiscal incidence concerns the overall degree of progressiveness or regression of government programs. It is estimated by allocating all taxes and transfer payments to different groups. Such a study is only approximate, since no one is sure how much the corporation tax or the property tax gets shifted.

Of course, economists are not magicians who can make such controlled experiments; but they take careful measurements and use good judgment to estimate the effects of taxes and spending.