Welfare Loss Of Taxation


DEFINITION of 'Welfare Loss Of Taxation'

The decreased economic well-being caused by the imposition of a tax. Taxing any product or activity makes it less attractive and gives people less incentive to purchase or undertake it. Taxpayers not only suffer from having less money because of the tax, they also suffer because the tax may change their behavior. Taxation results in deadweight loss which results in the economy functioning below optimal levels.

BREAKING DOWN 'Welfare Loss Of Taxation'

The market inefficiency that occurs when people change their behavior to avoid a tax creates a loss to society. A tax may cause individuals to buy less than they would prefer or to buy a different product or service than they really wanted. A tax can also cause workers to take additional leisure time rather than to work more when they know they will lose 35% of any additional dollar they earn to taxes. The higher the tax, the greater the welfare loss of taxation.

  1. Deadweight Loss Of Taxation

    A loss of economic well-being imposed by a tax. The loss occurs ...
  2. Tax Planning

    Logical analysis of a financial situation or plan from a tax ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Deadweight Loss

    The costs to society created by market inefficiency. Mainly used ...
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