In taxation, what is meant by the term 'tax incidence'?

Tax incidence refers to the analysis of how the burden of a tax is distributed between different economic agents, which typically includes consumers and producers. This concept is essential in understanding who ultimately bears the financial weight of a tax. For instance, when a tax is levied on a good, it can be passed on to consumers in the form of higher prices, or it could be absorbed by producers through lower profits.

The study of tax incidence helps us analyze the effects of taxation on the economy, including distributional impacts and behavioral responses. Understanding tax incidence is crucial for policymakers to assess how taxes affect various segments of the population and to design tax policies that align with socio-economic goals.

The other options address different concepts related to taxes but do not capture the meaning of tax incidence. Hence, the focus on the distribution of the tax burden is the defining characteristic of this term.