Background
Excess burden, a pivotal concept in the field of economics, refers to the loss in economic efficiency that occurs when the equilibrium for a good or a service is not achieved. Essentially, it represents the cost to society created by market inefficiency, which occurs when supply and demand are out of balance.
Historical Context
The term “excess burden” is often synonymous with deadweight loss, a concept that has been scrutinized and expanded upon by various economic schools of thought over centuries. The analytical foundations were developed significantly during the marginalist revolution in the late 19th century and further refined throughout the 20th and 21st centuries.
Definitions and Concepts
Excess burden represents the economic cost due to inefficiencies in the market resulting from various disruptions such as taxes, subsidies, or monopolistic practices. It indicates the loss in total surplus (consumer and producer surplus) that occurs when market output is not at its most efficient point.
Major Analytical Frameworks
Classical Economics
In classical economics, excess burden emerges from deviations from the natural order of free markets due to external interventions, primarily by the state.
Neoclassical Economics
Neoclassical economists elaborate on the concept of excess burden by exploring the disequilibrium in supply and demand caused by taxation or other forms of market disruptions. They often use the Harberger triangle to illustrate these inefficiencies.
Keynesian Economics
Keynesian economics focuses less on excess burden since it emphasizes mitigating short-term economic fluctuations over attaining market efficiencies.
Marxian Economics
Marxian economics usually tackles broader systemic faults within capitalism, such as exploitation and class struggle, rather than conceptually distinct inefficiencies like excess burden.
Institutional Economics
Institutional economists may attribute excess burden to institutional rigidities and resultant market failures.
Behavioral Economics
Behavioral economists might look at excess burden in the context of irrational behaviors and how they exacerbate market inefficiencies.
Post-Keynesian Economics
Post-Keynesians often address the need for full employment and equitable distribution, which can be at odds with minimizing excess burden strictly associated with market efficiencies.
Austrian Economics
Austrian economists typically attribute market inefficiencies leading to excess burden to distortions caused by government intervention and inappropriate monetary policies.
Development Economics
In development economics, excess burden may be examined in the light of policy-induced market distortions that hamper growth in developing economies.
Monetarism
Monetarists, focusing on the control of money supply, might include assessments of how inflation can introduce excess burden through market distortions.
Comparative Analysis
The analysis of excess burden varies hugely across different economic frameworks, but consensus usually emerges over the detrimental impacts of economic inefficiencies and market disequilibria, often reflected by taxation, subsidies, or monopolistic restraints.
Case Studies
Numerous case studies address excess burden, particularly in tax policy analysis where economists measure the economic loss incurred and suggest optimal tax strategies to minimize these inefficiencies.
Suggested Books for Further Studies
- Harberger, Arnold C. Taxation and Welfare.
- Varian, Hal R. Intermediate Microeconomics: A Modern Approach.
- Mankiw, N. Gregory. Principles of Economics.
- Stiglitz, Joseph E., and Rosengard, Jay K. Economics of the Public Sector.
Related Terms with Definitions
- Deadweight Loss: A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved.
- Consumer Surplus: The difference between the highest price a consumer is willing to pay and the price they actually pay.
- Producer Surplus: The difference between the lowest price a producer is willing to accept and the price they actually receive.
