Flashcards in Lecture 9 - Revenue issues Deck (4)
Excess burden of taxation - definition
This is the distortionary cost of raising a tax, compared with a poll tax yielding the same revenue -> deadweight loss
How does the DWL change with tax rate and elasticity of demand?
1) DWL is multiplied by 4 when the tax rate is doubled (see diagram
2) DWL increases with the elasticity of demand (larger reduction in quantity demanded, think of why petrol is often taxed, because demand is quite inelastic)
Most efficient combination of taxes should
equal the marginal excess burden (MEB) of each tax, considering that it is usually increasing.