Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Direct real burden represents an immediate loss of economic 
welfare to the tax payer e.g. fall in real income of tax payer. 
Indirect real burden relates to reduction of consumption, saving, 
investment, etc. This is an indirect loss of welfare.
(B) 
Hick‟s Concept of Incidence
Mrs. Ursula Hicks distinguishes between the ‗formal incidence‘ and 
the ‗effective incidence‘ of taxes.
Formal incidence refers to the proportion of tax-
payer‘s income 
that has been paid over to the government in financing public 
expenditure. The calculation of formal incidence is useful in 
assessing the question of redistribution of income through taxation. 
It may also be helpful in economic planning. However, the exact 
reaction of tax-payers to a change of tax or the economic 
repercussions of a tax cannot be directly ascertained by a mere 
estimate of the formal incidence. For this we have to make use of 
the concept of 
‗effective incidence.‘ 

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Effective incidence refers to the overall economic consequences 
of a tax. To know this we have to compare two sets of economic 
order, relating to income distribution, consumption pattern and 
allocation of resources, before tax and after tax. The visualised 
difference between economic order before tax and after tax is 
regarded as effective incidence of the tax. It is difficult to measure 
effective incidence due to interrelations among various economic 
variables in the economy. This calls for logical reasoning about the 
changes in economic variables like costs, aggregate demand, 
production, distribution of income, etc. due to the tax imposition. 
This concept would be of great importance to public authorities in 
selecting various taxes or in deciding changes in tax rates.