What are the factors that affect the size of the unnecessary loss of taxation?

The size of the unnecessary loss of tax revenue depends on the elasticity of supply.

and demand elasticity.

The effect of supply elasticity on the size of unnecessary loss: the greater the elasticity, the greater the unnecessary loss.

Effect of demand elasticity on the size of unnecessary loss: The greater the elasticity, the greater the unnecessary loss.

The senseless loss of taxes, i.e., the reduction in the total surplus caused when taxes shrink the size of the market below the optimal level—is equal to the area of the triangle between the supply curve and the demand curve.

In the figure (left), the unnecessary loss is quite small in the case of small taxes; In the figure (middle) and figure (right), the unnecessary loss has been increasing as the scale of tax revenue has increased.

Tax revenues, i.e., the amount of sales of an article or service after being taxed multiplied by the size of its tax revenues – is equal to the area of the rectangle between the supply curve and the demand curve. In the figure (left), when the small tax is rotten, the tax revenue is quite small; In Figure (middle) and Figure (right), as the scale of tax revenue increases, tax revenues first increase and then decrease.

As the scale of tax revenue increases, the amount of unnecessary loss increases all the time – that is, the proportion of the increase in the size of the tax is higher than that of the increase in the size of the tax revenue. This is because the senseless loss is the area of a triangle, and the area of a triangle depends on the product of the base and height of the triangle. For example:

If the size of the tax is doubled, the bottom and height of the triangular stool oak are doubled, so that the unnecessary loss is increased by four times (i.e., the increase in the amount of the unnecessary loss is the square of the multiplier of the tax scale).

As the scale of tax revenue increases, tax revenues first increase and then decrease. This is because the increase in the scale of taxation reduces the size of the market - in the beginning, the proportion of the increase in the scale of taxation is greater than the proportion of the decrease in sales; However, when the scale of taxation is huge, tax revenues will shrink to 0 because people will stop completely**.

(1) When tax revenue increases, it increases the distortion of incentives and increases unnecessary losses. As taxes increase, so do unnecessary losses. In fact, the amount of unnecessary losses increases faster than the size of tax revenues.

The reason is that the senseless loss is the square of the tax increase multiple. For example, a 2-fold increase in taxes would result in a multiplier of 4 for senseless losses.

2) When tax revenues increase, tax revenues initially increase as the scale of tax revenues expands, and then decrease. As tax revenues increase, tax revenues first increase and then decrease. Tax revenues begin to increase because the tax revenue received per unit is greater than the unit of sales it decreases.

However, at a certain point, the constant increase in taxes reduces the size of the market (the size of sales and taxation) to the point where a high tax is begun to be levied on these small items, and tax revenues begin to decrease. The Laffer curve can express this idea.

The basic meaning of the Laffer curve is that taxes do not increase with the increase of tax rates, and when the tax rate rises above a certain point, the total amount of tax revenue will not only not increase, but will fall. This is because the factors that determine taxation should not only look at the level of the tax rate, but also look at the basis of taxation, that is, the size of the income of economic entities. An excessively high tax rate will weaken the enthusiasm of the main economic entities in their economic activities, because if the tax rate is too high, the enterprises will only make small or even no profits, and the enterprises will become disheartened and reduce their production one after another, thus reducing the income of the enterprises, thus reducing the basis of taxation, shrinking the source of tax revenue, and ultimately leading to a decrease in the total amount of tax revenue.

The senseless loss of tax revenue, i.e., the reduction in the total surplus caused by tax revenues that shrink the size of the market below the optimal level.

As the scale of tax revenue increases, the amount of loss increases all the time, that is, the proportion of the increase in the scale of tax is higher than that of the increase in the scale of tax revenue, because the loss of innocence is the area of a triangle, and the area of the triangle depends on the bottom of the triangle and the high multiplicative product.

With the increase in the scale of taxation, tax revenues first increase, and then decrease, this is because the increase in the scale of taxation shrinks the size of the market, and in the initial stage, the proportion of the increase in the scale of taxation is greater than the decrease in sales, but when the scale of taxation is very large, the tax base will shrink to 0, because people will stop completely**.

The unnecessary loss of tax revenue, i.e., the reduction in the total surplus caused by the tax when the tax shrinks the size of the market below the optimal level.

As the scale of taxation increases, the loss of innocence increases all the time, that is, the proportion of the increase in the loss of nonsense is higher than the proportion of the increase in the scale of taxation, because the loss of innocence is the area of a triangle, and the area of the triangle depends on the product of the base and height of the triangle.

As the scale of tax increases, tax revenue first increases, and then decreases, this is because the increase in the scale of tax revenue, shrinks the size of the market, and in the beginning, the proportion of the increase in the scale of tax revenue is greater than the proportion of the decrease in sales, however, when the scale of tax revenue is very large, the tax revenue will shrink to 0, because people will stop completely**.