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In microeconomics, Incidence of indirect taxation is a term related to who pays for the tax of a product, who has the burden of paying the tax. For example, cigarette taxes are imposed by the government, not paid by the retailer but paid by the final consumer. This particular examples serves to show that the greater elasticity of a particular good and or service, the greater amount of tax burden will be placed on the producer of the item. The more inelastic the demand, the greater financial burden of a tax is placed on a consumer. Thus, taxes on cigarettes tend to be placed on consumers while taxes on yachts, for example, are absorbed by the seller.
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