Is it Time to Bury Dead-Weight Loss?

Abstract

The conventional argument to explain how taxes distort points out that the relative mix of private goods is altered by taxes. This argument breaks down, however, when it is recognized that a lump-sum alters the relative mix of goods as long as goods differ their income elasticities. This paper argues that claims of tax distortion rest on the assumption that collective decisions to alter consumption do not alter marginal benefits while private decisions to alter consumption do, and that this assumption is problematic. The view of government as an external, nondemocratic force is best understood as an outcome of the pre-democratic roots of economic thinking as well as the skeptical public-choice view of government as comprising self-interested actors.