Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/205534
Authors: 
Creedy, John
Year of Publication: 
2003
Series/Report no.: 
New Zealand Treasury Working Paper No. 03/29
Publisher: 
New Zealand Government, The Treasury, Wellington
Abstract: 
The 'excess burden' of taxation represents an efficiency loss which must be compared with any perceived gains arising either from income redistribution or the non-transfer expenditure carried out by the government. An important property is that, under certain assumptions, it increases disproportionately with the tax rate. This result provides the basis of a general presumption in favour of a broad-based and low tax rate system: any exemptions which reduce the tax base inevitably raise the tax rate required to obtain anunchanged amount of total tax revenue. The aims of this paper are to provide a nontechnical explanation of the concepts of welfare change and excess burden used in the public finance literature, and to demonstrate the result that an approximation to thisburden depends on the square of the tax rate.
Subjects: 
Taxation
excess burden
equivalent variation
compensating variation
JEL: 
H21
H30
D60
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

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