An important issue in taxation is who actually pays for a tax. While it seems straightforward that the owner of real property pays the property tax, and owners of automobiles pay a personal property tax on motor vehicles, often individuals are able to shift taxes to others as part of the good or service they are selling or providing. Understanding who “really” pays a tax is called tax incidence, and the ability to shift taxes to others varies with the tax. If tax systems are concerned about horizontality and verticality, they must also be concerned about who pays the tax in the end, because this ultimately relates to vertical equity.

The terms tax impact and tax incidence, along with a related concept of tax shifting, are ...