Reflections on Chapter 8: Application: The Costs of Taxation

How important is the concept of deadweight loss to taxation? It's the other side of the taxation coin and it must be considered when deciding what to tax. Policymakers should do their best to minimize it whenever possible by only taxing markets with inelastic demand or supply. The text didn't examine the results of a deadweight tax on a market with both inelastic supply and demand but I assume that would have less of a deadweight loss than any other scenario. If I was employed in an industry that was affected by taxation and deadweight loss then I would probably consider it very important. Just studying the phenomenon, I see it as an unfortunate but unavoidable result of taxation.

I found the concept of the Laffer curve very interesting. I never would have thought that lowering taxes could increase government revenue but it definitely makes sense now. The challenging part for advising economists is knowing where we are (our present tax levels) on that curve, so we can know which way we need to go.