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Welfare Effects of Sales Tax (Distortion)

Welfare Effects of Sales Tax (Distortion). CS 0 =abc. P. a. PS 0 =cbd. B 0 =0. S. CS 1 =aef. f. PS 1 =hgd. P’ C. e. b. B 1 =fehg. c. P. P’ p. h. g. Unit Tax. ∆CS=-febc. ∆PS=-cbgh. D. ∆B=+fehg. d. D’. ∆Net=-ebg. Q’. Q. Q.

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Welfare Effects of Sales Tax (Distortion)

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  1. Welfare Effects of Sales Tax (Distortion) CS0=abc P a PS0=cbd B0=0 S CS1=aef f PS1=hgd P’C e b B1=fehg c P P’p h g Unit Tax ∆CS=-febc ∆PS=-cbgh D ∆B=+fehg d D’ ∆Net=-ebg Q’ Q Q

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