Question

What is Marginal Excess Tax Burden? Please explain it using concise sentences. Give some examples of possible

Answer 1

In case the taxes imposed on the buyer or on the seller, there seems to be a creation of a wedge between what the buyers pay and what the sellers receive. This difference arises due to tax and this tax create a dead weight loss. The reduction in the consumer surplus and producer surplus is considered as the financial burden of tax. This person is Bond by both the buyer and seller. This is known as the excess burden of tax. In this sense, if there is a $1 increase in the tax revenue the associated change in the deadweight loss is used to measure the marginal excess burden of tax

A tax rate that is optimal in nature maximizes the tax revenue. If the tax rate is increased further to increase this tax revenue, the deadweight loss will increase and this tax revenue will decrease beyond the optimal tax rate. Therefore the marginal excess burden of tax can be used to measure whether that the tax is optimal or not.