Tax Incidence is an important concept used to explain the way taxes are paid and divided across buyers and sellers of goods and services. It is especially important in macroeconomic models, as it demonstrates which parties will ultimately be more affected by changes in taxation.

Simply put, the tax incidence of a particular goods and services shows who will ultimately bear the burden of the tax charged. This burden will be felt either by the buyer or the seller of the product, or will be divided between them depending on their respective levels of economic power and their demand or supply elasticity.

For instance, let's consider a tax imposed on a particular style of shoe. If the retailer has a high level of economic power, they may simply decide to take advantage of this power and pass on the entire burden of the tax onto the consumer, increasing the price of the shoe. However, if the buyer has more economic power and the demand for the shoe is also elastic, then the buyer may decide to move to another retailer with a lower price tag. This means that the burden of the tax is then shifted onto the seller, who is forced to lower their price to remain competitive.

An understanding of Tax Incidence is highly necessary for governments to target specific taxes. For example, a government that wants to put a tax specifically on the seller of luxury goods would be able to do so if they know the demand elasticity of the goods and the respective economic power of the buyers and sellers. This way, they can effectively ensure that the burden of taxation is placed on the desired target.

Overall, Tax Incidence is an important concept that presents an accurate representation of who is ultimately responsible for bearing the burden of taxation, and is necessary to better target taxes on specific types of goods, services, or class segments of a population. It is an important concept in both the macroeconomy and in society, as it helps illustrate the consequences of taxation in a real and tangible way.