Tax Diagram Deadweight Loss. Higher income tax makes leisure more attractive compared to working. Deadweight loss also known as excess burden is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced.
In relation to the diagram featured in figure 7 8 below the book explains that a portion of the loss to producers and consumers from the tax is not offset by a gain to the government specifically the two triangles b and f. Taxes are often justified on grounds of market failure. Higher income tax makes leisure more attractive compared to working.
Income tax and deadweight welfare loss.
In relation to the diagram featured in figure 7 8 below the book explains that a portion of the loss to producers and consumers from the tax is not offset by a gain to the government specifically the two triangles b and f. Deadweight loss is relevant to any analytical discussion of the. Graphically this is illustrated in the figure below where the tax wedge the deadweight loss is represented by the purple triangle. It is the area showing loss of consumer and producer surplus and no government tax revenue.
