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Deadweight Loss
(redirected from Excess burden of taxation)

   Also found in: Wikipedia 0.03 sec.
Deadweight Loss
The loss of economic activity due to excessive taxation. For example, suppose a person on welfare is offered a job that pays more than he/she receives in welfare benefits. If taxes are too high, however, the person may find that his/her aftertax income is in fact lower than what he/she was receiving on welfare. The person might then rationally decide to stay on welfare. The deadweight loss is both the cost of keeping that person on welfare and the loss incurred from the economy at large from losing that person's production. It is also called the excess burden of taxation.


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Over the past twenty years or so, one of the major insights to come out of public-sector economics is that the marginal cost of government provision ought to include the marginal excess burden of taxation.
Revenues and the Excess Burden of Taxation in a Federal System Because of the interjurisdictional competition present at lower levels of government, one might assume that the revenue raising potential of the federal government would be larger than the revenue-raising potential of a system of state-only taxation.
 
 
 
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