Working Paper: NBER ID: w0495
Authors: Alan J. Auerbach; Harvey S. Rosen
Abstract: It is well understood that a tax which distorts relative prices generates a welfare cost or "excess burden" in addition to any associated transfer of resources, but there remains considerable controversy and confusion with respect to procedures for measuring this excess burden. The purpose of this paper is to clarify matters concerning what is one of the most basic concepts in welfare economics. We describe and evaluate a number of alternative conceptual experiments which might lie behind an excess burden calculation, showing how these notions can be represented graphically and algebraically and how they can be approximated numerically.
Keywords: excess burden; welfare economics; taxation; consumer surplus; income compensation
JEL Codes: H21; D61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax (H29) | Loss in welfare (D69) |
| Loss in welfare (D69) | Excess burden (H22) |
| Tax (H29) | Consumer surplus (D11) |
| Consumer surplus (D11) | Excess burden (H22) |
| Tax (H29) | Revenue collected by government (H27) |
| Excess burden (H22) | Discrepancy between loss in consumer surplus and revenue (D11) |