Introduction Are people unaffected by a tax increase if they pay zero in taxes afterwards? No, consumption may have changed in response to the tax increase Bundle consumed is less desirable Excess burden is a loss of welfare above and beyond the tax revenues collected2 Introduction • Are people unaffected by a tax increase if they pay zero in taxes afterwards? – No, consumption may have changed in response to the tax increase – Bundle consumed is less desirable • Excess burden is a loss of welfare above and beyond the tax revenues collected