What are difference between formal incidence and tax incidence
Formal incidence is the legal responsibility for paying a tax, while tax incidence is the actual burden or impact of the tax on the economy.
Formal incidence is determined by law, and it is usually the entity or individual who is legally required to remit the tax to the government. For example, a sales tax may be levied on retailers, but they may pass on the burden of the tax to their customers by increasing prices. Thus, the formal incidence of the sales tax is on the retailer.
Tax incidence, on the other hand, refers to the actual impact or burden of the tax on the economy. It takes into account how the tax is actually distributed among various economic agents, such as producers, consumers, or workers. For example, if the sales tax is passed on to consumers in the form of higher prices, then the tax incidence falls on consumers, and they bear the burden of the tax.
In summary, formal incidence refers to who is legally responsible for paying a tax, while tax incidence refers to who actually bears the burden of the tax.