Deadweight Loss

http://www.marginalrevolution.com/marginalrevolution/2010/10/popularizing-deadweight-loss.html

by lionhearted • 16 years ago

21 12 16 years ago

Luyt• 16 years ago

You can of course decide to skip the bus ride, but what if the government taxes stuff you can't skip as easily? Like food, water or housing, or air to breathe?

akkartik• 16 years ago

Governments tax things that signal an ability to pay. It wastes effort to impose taxes that some people can't pay.

jerf• 16 years ago

You either pay the tax or you take the penalty for not taking the tax, in which case you lose pretty much everything and the government is now laying out money to incarcerate you. You can try to take a lower quality food or water but there's a limit on that too.

You can actually show that taxing is inefficient and inevitably (in practice) take more out of the economy than the government actually gets: http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Cha... though I mean this merely as an interesting fact, not a conclusion or an argument about "proper" taxation.

Taxing air is particularly pointless on Earth. It is however more interesting to consider the question of taxing air in a space environment where air is not free. Heinlein in particularly was known to play games with that concept.

billswift• 16 years ago

Jerry Pournelle also spent some time on it in Birth of Fire. In most SF, though, it is not treated or only implicitly.

jacoblyles• 16 years ago

That's a good point. Deadweight losses are smaller from taxes placed on goods with "inelastic" demand.

brandonkm• 16 years ago

This is a good way of showing what deadweight loss is. Another way of explaining it could be anytime you have an economic loss with no gains elsewhere in the economy. For example: trade quotas and tariffs create deadweight loss in a economy because they transfer value from the consumers to the producers by raising prices.

Also, anytime you have a market where theres a monopoly, deadweight loss will typically occur.

btmorex2• 16 years ago

This kind of ignores the fact that most taxes beyond income/property are actually there to modify behavior, not necessarily to generate revenue.

gwern• 16 years ago

Really? What's sales tax there for?

dantheman• 16 years ago

Or the VAT

btmorex2• 16 years ago

^^ most

chrismealy• 16 years ago

It takes a heap of Harberger triangles to fill an Okun gap.

BTW, in the real world almost nothing is sold at marginal cost.

jozo• 16 years ago

I don't get why we need ten line Q&A simplifications on hacker news, other than using theories for justifying opinions. Economic theory is already generalized and simplified enough as is. There's plenty of better source for information like this e.g. http://www.google.se/search?tbs=bks:1&tbo=1&q=deadwe...

Deadweight Loss

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