1) The document discusses the concept of excess burden of tax, which refers to the loss of economic welfare that arises due to distortions in consumption and production patterns caused by taxes. 2) It provides examples using demand and supply diagrams to illustrate how a tax leads to deadweight loss by reducing consumer surplus and producer surplus. 3) The excess burden can be measured under the old welfare economics framework using utility comparisons or under the new welfare economics framework using partial or general equilibrium conditions without utility comparisons.

1. S.A. JAIN (P.G.) COLLEGE
AMBALA CITY

2. PRSENTATION
ON
TOPIC
“EXCESS BURDEN OF TAX”
SUBMITTED BY
Surbhi Bhardwaj
M.A. (Prev.) Economics
4104
SUBMITTED TO
Ms. Pooja Mam
Department of Economics

3. TAX
A tax is a financial charge or other levy
imposed taxpayer by a state or other
functional equivalent or a state such that
failure to pay or evasion of a resistance to
collection, is punishable by law. Taxes are
also imposed by many administrative
divisions. Taxes consists of direct or
indirect taxes and many be paid in money
or as its labour equivalent.

4. EXCESS BURDEN OF TAX
Tax imposed both money burden and the real burden
over and above there burdens there may be an
additional burden on secondary burden on the tax
pair when a tax changes a price ratio of commodities
he consumes. When a tax payer has to substitute the
non tax product for tax product such sub stituation is
covtrary to his to his preference pattern between the
two products and is imposed on him against his
yield, this reallocation of consumer and budges lows
down welfare level and his secondary burden is
called the Excess Burden of Tax.

5. EXCESS BURDEN AND THE NATURE
OF COMMODITY
Suppose there is two goods X and Y.
DWL --- Dead Weigh Loss
Y
D
Y Good E1
S1 S1
S Revenue DWL E S
D
O Q1 Q X
X Good

6. For OQ* Quantity of X Good Consumer has to pay
amount equals to – OS Payment
Total Payment = OSEQ* there is Actual Payment
Willingness to pay total = OAEQ* Consumer
Surplus – SAE (OAEQ* - OSEQ*)
Before imposition of tax when tax is imposed total
quantity of X Produced Equals = OQ1

7. Y
Y Good C.S. E1
S’ S’
R E
S S
O Q1 Q X
X Good

8. For this he has to pay per unit = OS’
Total Payment = OS’E1Q1
Willingness to pay = OAE1Q1
Consumer Surplus = OAE1Q- OS’E1Q1
Loss of Consumer Surplus due to Tax Imposition
SAE= AS’E1=S’SE1E
Government due to Tax Imposition - S’E1SE ,
Dead Weigh Loss= E1E2E this is the loss
Which income to the society due to tax and it is
called Excess Burden of Tax.

9. Excess burden conditions for economic efficiency.
An arrangement is considered efficient if resources
are used in a way which does not leave possibility of
alternative anagement under which somebody would
be better of without anyone being verse off
economic efficiency envolve various requirement
and for this reality conditions are:-
1.) Alternative Products
2.) Income and Leisure
3.) Prices and Future Consumption

10. EXCESS BURDEN OF TAX AND
MEASUREMENT
Excess burden of tax can be measure both under old
welfare economics (Marshall) and new welfare economic
this can be measured into two heading:-
1.) Partial Equilibrium Tax
2.) Excess Burden Under General Equilibrium Tax
The old welfare economics involve the concept of
involve the interpersonal utility comparision developed
by Alford Marshal and Pigou while treatement under
now welfare economics exclude utility comparison and
pause formulated firstly in a partial equilibrium term by
Josph and later in a general equilibrium by Rolph break.

11. MEASUREMENT OF EXCESS
BURDEN OF TAX
Old Welfare
Economics
Marshall, Pigou
Interpersonal
Comparison Of Utility
With the help of loss of
Utility Excess Burden Of
Tax can be measure
New Welfare
Economics
Partial
Equilibrium
Condition
General
Equilibriu
m
Condition
With the help of Direct and
Indirect

12. EXCESS BURDEN OF TAX ON THE BASIS
OF OLD WELFARE ECONOMICS
Y
S1
E1 S
Cost P
and P* E
Price N’
N
O Q1 Q X
Commodity X

13. Before Tax (Consumer Surplus(CS) = P*DE)
(P.S. = P*EN)
After Tax Imposition (Tax Imposed = NN’)
(C.S. = P’DE1)
(P.S. = N’K’N)
Loss of C.S. = P*DE- P’DE1
= P’P*EE1
Loss of P.S. = P*NE- N’K’N
= P*N’EK
Total Loss of Surplus (C.S. to P.S.)
= P’N’KE’E --- Government Revenue ---DWL
P’N’KG’E – P’N’KE’ = E1EK

14. EXCESS BURDEN OF TAX UNDER
PARTIAL EQUILIBRIUM
Y
B
B1
y* IC
y1
E1
E2
E
O X1 B2 X* B1 B X
X Good
Y Good
IC2
IC1

15. Zero Income Tax on a Society
Due to imposition of indirect tax. Budget Line
shift from BB to BB2 because indirect tax
imposed only on ‘X’ Good and due to this loss of
utility is higher than the loss of utility in case of
Income Tax because consumer is at lowest level
of IC i.e. IC2 while there is no change in
government Revenue which is equal both on case
of direct tax or indirect tax equal to be
equilibrium.

16. EXCESS BURDEN OF TAX UNDER
GENERAL EQUILIBRIUM
O X0 P
X Good
IC
IC1
E
P1
P1
Y
P
Y Good
Y0

17. MRSXY = MRSLK = PX
PY
In Income Tax is imposed by the government than
there is no change in a PPC and equilibrium in the
type of E if indirect tax between the payment of tax
and the recipient of tax revenue this difference
shows the amount of excess burden of Income Tax
that bears a society.
Due to imposition of tax producer earn low a prices
this difference in a payment and receipts' shows the
excess burden of tax that bear by a society due to
imposition of tax.

18. P1 P1 = Face by Producer
P2 P2 = Face by Consumer
P2 P2> P1 P1 = Difference shows the
excess burden of tax that prevails in the
economy.

19. ZERO EXCESS BURDEN OF TAX
Y
B
B1
P*
P1 IC
IC1
O Q1 Q B1 B

20. This can be possible on a
poll tax and head tax and
this is rarely in a income
tax. Which is not in the
prevail in the economy.

21. CORPORATION
TAX
AND
INCOME
TAX

22. CORPORATION TAX
Individual as well as Corporation Tax are subject
to Income Tax. When lived on individual’s
Income Tax on Corporation is known as
Corporation tax or Corporation Income Tax.
Income of companies are subject to taxation in
India. Formly these were to pay an Income Tax
on a super profit tax. Which were merge into a
single tax by companies tax act (1964)
companies.

23. EFEECT OF CORPORATION TAX
ON BUSINESS DECISSIONS
1.) Effect on Consumption
2.) Effect on efficiency incorporate management
3.) Effect on industrial location
4.) Disaggregate effect of preferential
treatment of certain business
5.) Loss carry overyes and merges

24. 6.) Effect on choice between internal and external
financing
1.) By influencing the level of profits
2.) By influencing the decision to retain or
distribute these profits
3.) By effecting the terms of acquiring external
capital
7.) Stabilization effect of corporation income tax
8.) Effect on investment incentives

25. INCOME TAX
An Income Tax is a government levy(tax) imposed
on individuals or entities(taxpayers) that varies with
the income or profits of the taxpayers. Many
jurisdictions refer to income tax on business entities
as companies tax or corporation tax. Partnerships
generally are not taxed, rather the partners are taxed
on their share of partnership items.
Income tax generally is computed as the product
of a tax rate items taxable income. The tax rate may
increase as taxable income increases.

26. TAX EVASION AND BLACK
MONEY
It always assumes that the main reason for black
money generation was the world war II. The money
that is generated in the black money and which has
partly or fully escaped assessment is termed as black
money. In simpler terms, it means money that is not
taxed the circulation of black money is what is
referred to as “Parallel Economy” or “Unaccounted
Economy” or “Unsanctioned Economy” Or
“Underground Economy”.

27. SOURCES OF BLACK MONEY
1.) Drug / Arms Trafficking
2.) Smuggling
3.) Prostitution
4.) Terrorism
5.) Bribery and Kickbaeks
6.) Hawala Trade Arrangements
7.) Counterfeiting Currency
8.) Organized Crime

28. THE TWIN EVIL : TAX EVASION
AND BLACK MONEY
Generally, black money is generated in two ways:-
a.) One money which is generated through
illegitimate such as drug trafficking smuggling
etc.
b.) Money which is generated through legitimated
activities but is not reported and paid to the public
exchequer.
Second type of generation of black money is more
rampant and hazardous.

29. BLACK MONEY USING
ACCOUNTING MANIPULATIONS
Over the years there has been a substantias increase
in accounting and advditing standards very strict
disclosure requirements sincere efforts were put and
are still being put to refine.
Here are some of the methods employed by entities
which could be used as deceiving instruments to
smudge figures:-
1.) Omission of transaction from books of accounts
which are subject to taxation.

30. 2.) Maintaing parallel books of accounts by taxpayer
using one of them for his personal purpose and
the other for business purpose.
3.) Manipulating sales other receipts by diverting
there to dummy entities.
4.) Manipulating expense by exaggerating true
business expenditure like depreciation to revenue
tax.
5.) Other manipulations like falsely inflating other
expense like extertainment pravelling etc to
receive tax.

31. 6.) Through I’nal transactions diverting goods to
associated enterprises situated in lower tax
jurisdictions.
7.) Manipulating stock by under valuing them.

33. BIBLOGRAPHY
1.) Public Finance = R.K. Lekhi
2.) Public Finance = B.P. Tyagi
3.) Public Finance = R. K. Radhakrishan
4.) Internet