Abstract:

Any public expenditures include not only cash costs, but also an additional excess burden of the higher taxes that are used to finance the necessary expenses. As a result, the society not only pays for public expenditures financed due to tax collection, but also incurs additional losses. The assessment of these losses, called excess burden of taxation, must be taken into account when defining the tax burden and analyzing the options for improvement of the tax system. The general equilibrium model with taxes is considered in the paper. In the proposed model, the economy is described using a general equilibrium model in which one product is produced and one type of labor is used. This model includes three types of economic agents: producer, household and state. This problem is widely discussed in scientific literature. We assume that the rate of one of the taxes varies and each household receives additional income from outside, which allows maintaining the initial level of utility in equilibrium. Excessive tax burden is the difference between additional compensating income and increase in tax collections. The ratio of excessive tax burden to the increase of tax revenues is called the marginal excess burden of taxation for this tax (if its rate change is small).