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What is Tax Impact on Deadweight Loss and Revenue about?

When a tax is increased, the deadweight loss, which is the reduction in total surplus due to the tax, will typically increase. Tax revenue will also typically increase because the government is collecting more money from transactions that are still occurring despite the tax increase. This is illustrated in a figure showing that a larger tax leads to a larger deadweight loss but also larger tax revenue, except when the tax is very large and reduces the size of the market significantly.

Author

swetasah

Language

EN