Public Finance Textbooks Miss the Excess Burden of Taxes

September 19, 2014

A group of professors recently released a study that finds insufficient discussion of the total cost of taxes in public finance textbooks. They find that common textbooks fail to fully include the total cost of taxes into discussions of public goods and cost-benefit analyses. I quote the abstract of the paper in full:

“Taxation has several significant excess burdens, including enforcement costs, compliance costs, and deadweight losses. Most estimates find that raising a dollar of tax revenue costs much more than a dollar. Unfortunately, commonly used public finance textbooks do not integrate these costs into discussions of public goods or cost-benefit analyses. Not including these costs means that the optimal levels of public goods will be overestimated. Textbooks say too little, too late about the excess burdens of taxation. They could easily introduce excess burdens early, represent them in public goods diagrams, and integrate them throughout public finance instruction.”

According to the paper, here is why this is an issue:

“Such practice is likely to lead students to underestimate the costs of government programs, predisposing them toward increased government spending. If instead students were instructed on the manifold costs of taxation and these costs were integrated into discussions of public goods, students would probably be less predisposed toward government spending.”

To read the entire paper, click here.

Hat tip to my colleague, Will McBride.


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