Excess Burden of an Income Tax: What Do Mainstream Economists Really Measure?

Roland Granqvist and Hans Lind
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Roland Granqvist: Department of Economics and Social Sciences, Dalarna University, SE-781 88 Borlänge, Swedenrgr@du.se
Hans Lind: Department of Infrastructure, Division of Building and Real Estate Economics, Royal Institute of Technology, SE-100 44 Stockholm, Swedenhans.lind@infra.kth.se

Review of Radical Political Economics, 2005, vol. 37, issue 4, 453-470

Abstract: An income tax can have side effects like decreased labor supply and lower effort levels. These side effects are important to consider in the decision of whether to introduce the tax. The terms deadweight lossand excess burdenare used by mainstream economists in this context. In this article, it is argued that according to the measures they use, an excess burden is registered, even if there are no actual side effects. The explanation is that they actually measure the difference between the situation with the income tax and a situation with a hypothetical lump sum tax. Because lump sum taxes are not realistic alternatives, for administrative and political reasons, the conventional measurements are irrelevant from a policy perspective.

Keywords: excess burden; deadweight loss; income taxes (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:sae:reorpe:v:37:y:2005:i:4:p:453-470

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