thumb|400x400px|Graph of a tax wedge, showing consumer and producer incidence.
The tax wedge is the deviation from the equilibrium price and quantity (<math>P^*</math> and <math>Q^*</math>, respectively) as a result of the taxation of a good. Because of the tax, consumers pay more for the good (<math>P_c</math>) than they did before the tax, and suppliers receive less for the good (<math>P_s</math>) than they did before the tax . Put differently, the tax wedge is the difference between the price consumers pay and the value producers receive (net of tax) from a transaction. Deadweight loss occurs with a tax because a higher price for consumers, and a lower price received by suppliers, reduces the quantity of the good sold. For example, if a person directly pays his or her income tax to the government (with no employer withholding), the statutory burden would fall on consumers. If a tax is imposed on the producers of gasoline, however, the statutory burden would fall on producers.
The economic incidence of a tax falls on the party that bears the actual cost of the tax. Put another way, economic incidence reflects the actual change in an individual's or firm's resources due to the tax. Producers bear more of the tax when supply is inelastic; for example, producers of beachfront hotels would bear more of a tax on hotels and accept lower prices for their product, because a change in price would not have a large effect on the quantity of beachfront hotels.
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de:Ökonomische Wohlfahrt#Wohlfahrtswirkungen einer Steuer