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What is the modern theory of incidence in public finance?
How does tax incidence relate to economic efficiency?
Tax incidence can have a significant impact on economic efficiency, since it can change the prices of goods and services and change the incentives faced by consumers and producers. For example, if a tax on wages leads employers to hire fewer workers, it could reduce economic efficiency by reducing output and employment levels in the economy. Similarly, if a tax on pollution leads firms to invest in cleaner technologies, it could improve economic efficiency by reducing the negative externalities associated with pollution.