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A Graphical Exposition of the Link between Two Representations of the Excess Burden of Taxation

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  • Liqun Liu
  • Andrew J. Rettenmaier

Abstract

The excess burden of taxation typically has two graphical representations in undergraduate microeconomics and public finance textbooks: the IC/BC (indifference curve/budget constraint) representation and the demand/supply representation. The IC/BC representation has the advantage of showing the behavioral response to a distortionary tax and how a substitution effect alone contributes to the excess burden, whereas the demand/supply representation, also known as the Harberger Triangle, has the advantage of being easily estimated using observable variables. The authors provide a link between the two excess burden representations by illustrating how the Harberger Triangle in the demand/supply framework corresponds to the line segment that represents the excess burden in the IC/BC framework.

Suggested Citation

  • Liqun Liu & Andrew J. Rettenmaier, 2005. "A Graphical Exposition of the Link between Two Representations of the Excess Burden of Taxation," The Journal of Economic Education, Taylor & Francis Journals, vol. 36(4), pages 369-378, October.
    • Handle: RePEc:taf:jeduce:v:36:y:2005:i:4:p:369-378
    DOI: 10.3200/JECE.36.4.369-378
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