One dollar of tax revenue ends up costing citizens in the economy
A) less than one dollar.
B) exactly one dollar.
C) more than one dollar.
D) nothing.

Question

Quizplus · Accepted Answer

This is known as the "deadweight loss" of taxation, which results from the distortion taxes create in the market. When taxes are levied, it increases the price of goods and services, reducing the purchasing power of consumers. This creates a decrease in economic activity, leading to a decrease in both consumer and producer surplus. This reduction in surplus causes economic inefficiencies, which adds to the cost of taxation in the economy. Therefore, one dollar of tax revenue ends up costing citizens in the economy more than one dollar.

One Dollar of Tax Revenue Ends Up Costing Citizens in the Economy