Welfare Loss Of Taxation

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Economics

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

    The costs to society created by market inefficiency. Mainly used ...
  6. Tax Freedom Day

    The day that the average American has earned enough money (in ...
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Entrepreneurship

    Tax Credit For Plan Expenses Incurred By Small Businesses

    Determine whether your business is eligible to claim a tax credit for establishing a retirement plan.
  3. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  4. Retirement

    Avoiding Too Much Tax On Your Distributions

    IRA assets can't be taxed twice - find out how to avoid paying the second time around.
  5. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  6. Forex Education

    How International Tax Rates Impact Your Investments

    International investors need to be aware of the staggering correlation between tax rates and economic performance.
  7. Options & Futures

    7 Ways To Avoid Self-Employed Tax Penalties

    If you follow these methods for calculating estimated tax payments, you could minimize your chances of incurring penalties.
  8. Economics

    10 Countries With The Biggest Forex Reserves

    Without adequate reserves, a nation's economy can grind to a halt. Here are the 10 nations with the biggest forex reserves.
  9. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  10. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center