{"id":6507,"date":"2021-10-11T12:54:42","date_gmt":"2021-10-11T12:54:42","guid":{"rendered":"http:\/\/euseguros.pt\/?p=6507"},"modified":"2021-11-14T19:11:47","modified_gmt":"2021-11-14T19:11:47","slug":"taxation-and-deadweight-loss","status":"publish","type":"post","link":"https:\/\/euseguros.pt\/en\/taxation-and-deadweight-loss\/","title":{"rendered":"Taxation and Deadweight Loss"},"content":{"rendered":"

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Taxation and Deadweight Loss Overview
\n<\/strong><\/h3>\n

Governments get paid by enforcing taxes on both producers and consumers. When taxes are imposed, this reduces the quantity of a product that will be sold in the market. And whenever the market is not in equilibrium due to an imposed restriction, there will be inefficiencies.
\n<\/strong><\/p>\n

In a perfectly competitive market, both consumer and producer surplus is the same.<\/p>\n

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But when a tax burden is enforced, it will reduce consumer or producer surplus based on where it is being applied.<\/p>\n

This per unit tax is also called Excise Tax<\/strong> – taxes that are imposed on various goods, services and activities. Such taxes may be imposed on the manufacturer, retailer or consumer, depending on the specific tax.<\/p>\n

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TAXES ON PRODUCERS<\/strong><\/h3>\n

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If the socially optimum quantity of a given product is 100 at \u20ac<\/span>3, and government enforces a tax on the supply of \u20ac<\/span>2, this means that for the same price \u20ac<\/span>3, the producers will supply less, shifting the Supply Curve to the left, causing a demand loss of 20 (100-80).<\/p>\n

We now have 3 players: the Consumer, the Government and the Producer). Before we had the Consumer and Producer Surplus optimized by having each occupy the above and below level of the \u20ac<\/span>3 horizontal line. Now each of these areas has shrunk by \u20ac<\/span>1 each(\u20ac<\/span>1 loss for consumer surplus and \u20ac1 loss for producer surplus) <\/span>and a deadweight loss is now present between 80-100 quantity.<\/p>\n

This can also be applied to the consumer, having the effect of a decreased demand, shifting the demand curve to the left. Prices will go down to adjust to the new demand, but a deadweight loss is present to acommodate tax-revenue.<\/p>\n

In either case, remember that: The larger the deadweight loss, the larger the tax revenue.<\/strong><\/p>\n

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ELASTICITY AND TAX
\n<\/strong><\/h3>\n

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While government intervention adds a third party to the market making it inneficient as not all supply is going to be equally consumed, it’s important to undertand who bears more of the tax burden.<\/p>\n

Perfectly Inelastic Demand<\/strong> – Tax burden paid entirely by the consumer<\/p>\n

Relatively Inelastic Demand<\/strong> – Consumers pay the majority of tax<\/p>\n

When Demand and Supply’s Elasticity is the same<\/strong> – Consumers and producers share the tax burden equally<\/p>\n

Relatively Elastic Demand<\/strong> – Tax burden is mostly paid by the producers<\/p>\n

Perfectly Elastic Demand<\/strong> – Tax burden is entirely paid by the producers<\/p>\n

 <\/p>\n

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Deadweight loss of taxation measures the overall economic loss caused by a new tax on a product or service.<\/p>","protected":false},"author":1,"featured_media":6508,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[152,153],"tags":[228,227,206,230,229,226],"yoast_head":"\nTaxation and Deadweight Loss - EU Seguros<\/title>\n<meta name=\"description\" content=\"Deadweight loss of taxation measures the overall economic loss caused by a new tax on a product or service.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/euseguros.pt\/en\/taxation-and-deadweight-loss\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Taxation and Deadweight Loss - 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