The term economic welfare is used in the context of the political economy as abstract measured variable for (economic) the well-being of a country. This concerns the wrong translation of the English term "“welfare"”, actually in German "“prosperity"” means. Simplifying many economical work measures the welfare as the sum of Konsumentenrente and producer pension. In some models additionally transfer incomes from the foreign country are considered.

To justify this micro-economically founded basic concept often used over that national interferences (e.g. the collection of taxes or the introduction of a foreign trade tariff) are welfare-reducing. One speaks in this connection of (net) a welfare loss. Critics criticize, the concept diffamiere national interferences into the free market over fee, since it ignores a row additional use of the state activity.

Basic concept

One imagines a perfect market for a property. Supply and demand demand cut themselves at one point, the point of equilibrium, it form a Gleichgewichtspreis P_ {GG} (price: Y axis) and an equilibrium quantity of X_ {GG} (quantity: X axis) out. There are no further Nachfrager, those at this price would buy and no further offerers, who would offer the property for this price. The surface between one horizontal to the x axis running straight line on height of the Gleichgewichtspreises (P_ {GG}) and the demand curve (D) is called Konsumentenrente (KR), the surface between this straight line and the offer curve (s) is called producer pension (PR). The sum of the two surfaces PR+KR (i.e. the surface left of the point of equilibrium between supply and demand demand) is the total pension.

Welfare and welfare loss

By a welfare loss (also net welfare loss, Allokationsverlust, additional load of the tax, tax wedge, DEAD weight loss, excess burden) one understands caused loss at consumer and producer pension in this connection by a in the comparison to the situation of perfect competition. The cause for the loss at welfare is in each case the fact that the acted (=produzierte) quantity deviates from the pareto optimal quantity, which adjusts itself on a perfect competition market in the equilibrium.

There one the welfare loss (at least theoretical) related to value to compute can be computed, can the costs by market interferences such as taxes, top prices, tariffs or market failure (e.g. due to monopolyistic structures or external effects).

The welfare loss is however among other things because of the partialanalytischen view a not unproblematic measure.

Welfare gain

The welfare gain is the counterpart to the welfare loss. Wohlfahtsgewinne can be realized only in imperfect markets, since in perfect markets the maximum of the welfare is already reached. A welfare gain is reached e.g. according to the foreign trade theory of the economist David Ricardo by increased free trade, since thereby absolute cost advantages and an economical prosperity gain are thus obtained.

Welfare effects of a tax

Now if a tax is introduced, then it is no matter for their welfare effects, who must pay this tax. Economically regarded hangs about question the Steuerinzidenz, thus the question, who the tax in which measure and/or to which portion clears away (not, who pays it), only from the of the offer and of the demand curve.

The introduction of a tax has the following effect: Offerers and Nachfrager are faced with different prices, because the offerer interests only, which it net (without tax = P_1)) gets, the Nachfrager interested only, which it must pay gross (inclusive tax = P_ {1+t}). Thus it comes by the tax also to a quantity effect. The set off quantity goes in the comparison to the equilibrium without taxes (X_ {GG}) back on X_1.

The Konsumentenrente (KR) sinks now for two reasons:

1. The consumers must carry a part of fiscal charges, this reduce their pension. (Example: The property is always already worth 200 to the consumer. Before taxation it cost 100, after taxation costs it to 120. The Konsumentenrente is thus reduced from 100 to 80.) This effect meets all consumers, which buy further, it pays instead of P_ {GG} now P_ {1+t}.
2. The consumers consume now less from the property than in the original equilibrium. (Some consumers do due to the taxconditionally increased price without the consumption of the property.) this corresponds to the decrease of X_ {GG} on X_1.

The producer pension (PR) sinks likewise for two reasons:

1. The producers must carry a part of fiscal charges, this reduce their pension. (Example: The production of the property costs the producers 20. Without taxation it obtains 100, after taxation 120 at the market, must however 40 tax exhaust - its profit (pension) is reduced from 80 to 60). This concerns all producers, who offer further, it received instead of P_ {GG} now only P_1.
2. The producers can sell less than in the original equilibrium. (Example: The production of a property costs 90, without taxation obtains the producer a profit of 10, will thus offer, after taxation (tax 40, price 120) it a loss of 10 would make, does not offer thus not). This corresponds to the decrease of X_ {GG} on X_1.

The negative effects on consumer and producer pension become at least partly balanced by higher public revenues due to the taxation. To the state thereby incomes to the extent of S flow. Most economic models assume the state uses these incomes welfare-increasing in other place. Therefore they are in the model a component of the total welfare. State-critical economists argue however, the state can use its incomes far less efficiently than consumers and producers, why a perfect integration appears doubtful into the economic welfare in the reality.

However the entire reduction of producer and Konsumentenrente does not flow to the state. On the goods, which were acted before taxation, after taxation however no more (for the Nachfrager gross too expensively, for the offerers net too favorably) (thus on the difference between X_ {GG} and X_1) no tax is levied. Only this decrease of the total pension is called net welfare loss and/or additional load of the taxation (excess or deadweight loss OF rating burden) (ZL). Formally: KR+PR (without taxes) > KR+PR+S (with taxes)

Classification and conclusions on the tax policy

Who must carry a larger part of fiscal charges, depends on how flexible supply and demand are. With a completely inelastic demand (the demand for gasoline is very inelastic) the producers can over-roll fiscal charges nearly completely. With an extremely flexible demand (to food in Germany, see also Discounter) to have the producers fiscal charges to carry to a large extent.

With only small demand elasticity the additional load of the taxation is quite small, since the set off quantity goes only very little back. Therefore frequently the demand, one is is to goods with a very inelastic demand to tax (cigarettes and other craze means, gasoline and like). An interesting counterargument is led by representatives of the Public Choice theory into the field: If different control items are raised on different goods (like for example the decreased VAT rate of only 7% instead of 16% on certain goods, see value added tax), then result costs from the additional since different industries will try to let their products tax as low as possible while these costs are smaller with a uniform control item.

More to tax pre and - disadvantages in the article tax.

Welfare effects of a tariff

The model of the welfare effect of a tax can be transferred as a whole also to the effects of an import duty. This represents a tax on imported goods and raises the price of the market price therefore in the same measure as a tax. Therefore the model comes also here to the same conclusions: Import duties obstruct the free market process and lead therefore to additional loads.

Classification and conclusions on the foreign trade policy

The represented model questions the economic efficiency of an import duty in principle. Far one going models to show however that the collection of customs duties can be welfare-promoting in special for large countries nevertheless, since they can shift a part of the loads over price effects upon the foreign country. Unbenommen of the criticism remains beyond that e.g. the collection of an educating tariff.

Articles in category "Economic welfare"

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