Question

t/F/U. Taxes take wealth from some and redistribute it to others. In your explanation include a discussion and several examples of “deadweight loss” and “leaky buckets”

Answer 1

deadweight loss in taxation is the harm caused to economic efficiency and production due to taxation.

taxation causes the reduction in the returns from investment,entrepreneurship,wages , ineheritance etc.which , reduces the incentive towork , take risks, invest, work, and to save thereby encouraging taxpayers to divert valuable resourses from other productive resources by spending less time and money inorder to avoid their tax burden.

for e.g. if Joseph values that his trip to New Jersey will yied him utility of $55 and ticket to New Jersey costs $30 , he would certainly go for it but now if the government suddenly increases the tax rate to 100% then ticket will now cost him $60 , he will now certainly not opt for the trip as it will cost him more than the utility derived from it.

this will lead to dead weight loss as due to taxation , there is loss in the total output .