Question

How does the deadweight loss of a tax increase relative to the tax revenue from the tax as the size of the tax increases?

Answer 1

When a tax is levied on a product, the surplus for buyers and the surplus for producers rises. Increases in tax revenues. The overall (welfare) surplus is falling. Therefore, the losses from a tax to buyers and sellers (the decrease in consumer and producer surplus) outweigh the government's revenue generated. The drop in total surplus which results when a tax distorts a market outcome is called the loss of deadweight.

The largest amount of revenue that governments collect comes from market transaction taxation, especially labor taxation. Taxes obviously lower the value of transactions for both buyers and sellers, in that the buyer pays more for the product to some degree and the supplier receives less. Some of that value loss goes to the government, which naturally is why it collects taxes. Howeve Anyway

Consequently, the economy as a whole loses some interest from taxation, and this total loss is referred to as the loss of taxation by deadweight. In fact, the loss of deadweight consists of the loss of consumer surplus for consumers plus the loss of producer surplus for sellers who for reasons other than the price of the product or service do not participate in the market, resulting in a loss of total surplus for the economy. For example, a loss of deadweight can be generated by taxes or artificial obstacles, such as criteria for occupational licensing, or from artificial supply constraints by monopolies or oligopolists.