In
economics, the
excess burden of
taxation, also known as the
distortionary cost or
deadweight loss of taxation, is one of the economic losses that society suffers as the result of taxes or subsidies.
Economic theory posits that
distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the
average cost of funds or the
marginal cost of funds (
MCF). Excess burdens were first discussed by
Adam Smith.