The conversation between human and AI assistant.
What is the modern theory of incidence in public finance?
Can you give me an example of tax incidence?
Sure! Let's say the government imposes a tax on cigarettes. The immediate burden of the tax falls on the producers of cigarettes, who will likely pass some of the cost onto consumers in the form of higher prices. As a result, the incidence of the tax is shared between producers and consumers, depending on factors like how sensitive consumers are to changes in prices and whether producers have the ability to raise prices without losing too many sales.