The flypaper theory of tax incidence is a derogatory term used by economists for the assumption that the burden of a tax, like a fly on flypaper, sticks wherever it first lands. Economists point out several flaws with the assumption:
- it ignores the elasticity of goods
- it ignores the ability of producers to shift the cost of the tax onto consumers
As another example, suppose a tax is levied on the sellers of a product. The sellers may simply raise the price of the product, thus shifting the burden of the tax on the buyers of the product.