How to read this
A tax raises the price of good 1 from to . The government collects the yellow rectangle ; the consumer loses , the area to the left of the Hicksian demand curve between the two prices. The difference is lost to everybody: the deadweight loss.
- Raise the tax: the loss grows with the square of the tax.
- The loss exists because the Hicksian curve slopes down, for normal and inferior goods alike.
Preferences
The tax
Tax revenue and deadweight loss
Numbers
DWL per krone of tax for 14 commodity groups (1999 data, as in the notes)
The last column recomputes from the table's own compensated elasticity and effective tax rate: it matches the reported value up to rounding. Alcohol and tobacco and private transport are taxed heavily and react strongly, so each krone collected there costs most.