Deadweight loss of taxation,

Definition of Deadweight loss of taxation:

1. The deadweight loss of taxation is a measurement of the economic loss that is caused by the imposition of a new tax. English economist Alfred Marshall (1842-1924) is widely credited as the originator of deadweight loss analysis.

2. The theory posits that imposing a new tax or raising an old one can backfire, resulting in insufficient or no gains in government revenues due to the decline in demand for the goods or services being taxed. The equilibrium between supply and demand has been disrupted.

3. The effect of tax surcharges on supply and demand and their influence on production and peoples purchasing behavior. Surcharges that lead to a decrease in the price received by producers and an increase in the price paid by consumers which ultimately result in a decrease in tax revenue due to market shrinkage. Also called excess burden.

How to use Deadweight loss of taxation in a sentence?

1. It is a lost opportunity cost.
2. Deadweight loss of taxation measures the overall economic loss caused by a new tax on a product or service.
3. It analyses the decrease in production and the decline in demand caused by the imposition of a tax.