Even if a tax imposed in a market generates a loss in surplus for the participants in that market, the tax could still increase economic efficiency if:

Question

Quizplus · Accepted Answer

The tax could increase economic efficiency if the public expenditures financed by the tax lead to a big enough increase in economic surplus. This means that the benefits of the public expenditures outweigh the loss in surplus for the participants in that market due to the tax. Voters approving the tax, the government needing to generate tax revenue, or the tax revenue being used to fund spending by local governments do not necessarily indicate an increase in economic efficiency.

Even If a Tax Imposed in a Market Generates a Loss