Vanishing surplus
Trades that no longer occur destroy consumer and producer surplus. Dupuit (1844) saw losses rise with the square of the tax rate; Hotelling (1938) extended this.
Harberger triangles
Harberger (1954) estimated monopoly losses at about 0.1% of income; Hines (1999) reviews the method, used widely for monopoly and market failure.
Modern measurement
Auerbach (1985) formalised excess burden; Feldstein (1999) used the taxable-income elasticity; Slemrod and Yitzhaki (2002) added avoidance and administration costs.
FAQ
- What is it in simple terms?
- Value that disappears because a tax or monopoly stops trades that would have happened.
- Does doubling a tax double the loss?
- Roughly quadruples it, since loss scales with the square of the rate.
Sources reviewed: 2026-10-26
References
- Dupuit, J. (1844). De la mesure de l'utilité des travaux publics. Annales des Ponts et Chaussées, 8, 332–375. The classic source of the insight that losses rise with the square of the tax rate.
- Hotelling, H. (1938). The general welfare in relation to problems of taxation and of railway and utility rates. Econometrica, 6(3), 242–269. A mathematical treatment of welfare costs of taxes and utility pricing.
- Harberger, A. C. (1954). Monopoly and resource allocation. American Economic Review, 44(2), 77–87. The first estimate of monopoly deadweight loss, popularising the Harberger triangle.
- Auerbach, A. J. (1985). The theory of excess burden and optimal taxation. In A. J. Auerbach & M. Feldstein (Eds.), Handbook of public economics (Vol. 1, pp. 61–127). North-Holland. A systematic chapter on measuring excess burden and optimal taxation.
- Hines, J. R., Jr. (1999). Three sides of Harberger triangles. Journal of Economic Perspectives, 13(2), 167–188. An accessible history and assessment of Harberger triangles.
- Feldstein, M. (1999). Tax avoidance and the deadweight loss of the income tax. Review of Economics and Statistics, 81(4), 674–680. Shows how the taxable-income elasticity captures income-tax deadweight loss.
- Slemrod, J., & Yitzhaki, S. (2002). Tax avoidance, evasion, and administration. In A. J. Auerbach & M. Feldstein (Eds.), Handbook of public economics (Vol. 3, pp. 1423–1470). Elsevier. Extends efficiency costs to avoidance, evasion and administration.