Tax Incidence

The typical reaction of individuals and firms to taxation is to avoid being taxed or to reduce one's own tax burden. The economics of taxation examines who, economically speaking, bears the burden of a tax, and what the welfare effect of said tax is. Both legal tax avoidance and illegal tax evasion are examined in public finance. Both types of behaviour depend on social, political, legal and other institutional conditions (e.g., data protection issues and the possibilities and restrictions of international capital markets). Research in public finance increasingly makes use of laboratory experiments to explore these interrelations, alongside traditional tax theory and the instruments of quantitative econometric analysis