What term describes the actual burden of a tax shared between buyers and sellers?

The term that describes the actual burden of a tax shared between buyers and sellers is tax incidence. This concept captures how the cost of a tax is distributed among participants in the market, including both consumers who pay higher prices and producers who receive lower prices.

Understanding tax incidence is crucial because it reveals the real economic impact of taxation beyond simply identifying who is legally responsible for paying the tax. The way the burden is shared depends on the relative price elasticity of demand and supply. If demand is relatively inelastic compared to supply, consumers will bear a larger portion of the tax burden, as they are less responsive to price changes. Conversely, if supply is more inelastic, sellers will take on a bigger share of the tax burden.

Tax levies pertains to the legal imposition of a tax but does not address the distribution of its burden. Tax diffusion, while it may sound related, is not a standard term used in economics to describe this concept. Tax equity refers to the fairness of the tax system but does not specifically address how the burdens of taxes are distributed among economic agents.