Tax Incidence and Deadweight Loss Calculator

Buyer/seller tax burden split, government revenue, and deadweight loss for a per-unit tax.

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Educational estimate only — not tax advice. Confirm rates, thresholds, and filing rules with the relevant tax authority or a qualified adviser.

About this tool

Enter linear demand and supply and a per-unit tax. The calculator shows the price buyers pay, the price sellers receive, the new quantity, tax revenue, the deadweight loss and each side's share of the burden. A negative tax is a subsidy.

How to use

1
Step 1
Enter the demand and supply parameters a, b, c and d.
2
Step 2
Enter the per-unit tax (use a negative number for a subsidy).
3
Step 3
Choose who legally remits the tax and compute.

How it works

A tax drives a wedge between the price buyers pay and the price sellers keep. The side with the less responsive curve bears more of it: buyers' share is d ÷ (b + d) and sellers' share is b ÷ (b + d). Who sends the money to the government does not change the economic split, so the buyers and sellers options give identical prices and quantity. Deadweight loss is ½ × tax × the drop in quantity.

buyers' share = d ÷ (b + d)      sellers' share = b ÷ (b + d)      revenue = t × Q_after      DWL = ½ × t × (Q* − Q_after)

Worked example

A 5 per-unit tax

Input
a 120; b 3; c 20; d 2; tax 5
Output
Buyers pay 22; sellers keep 17; quantity 54; revenue 270; DWL 15; burden 40% buyers, 60% sellers
Walkthrough
Before the tax, P* = 20 and Q* = 60. After it, quantity falls to 54. Revenue is 5 × 54 = 270. DWL = ½ × 5 × (60 − 54) = 15. Buyers' share is 2 ÷ 5 = 40%. As a subsidy of 5, buyers pay 18, sellers get 23, 66 units trade and DWL is also 15.

Limitations

  • Per-unit taxes on linear curves only; no ad valorem tax.
  • A tax large enough to drive quantity below zero is rejected.
  • Ignores what the revenue is spent on.

Questions

Who bears the burden of a per-unit tax?
Whichever side is less price-sensitive. With b = 3 and d = 2, buyers bear d ÷ (b + d) = 40% and sellers 60%.
Does it matter whether buyers or sellers pay the tax by law?
No. The prices and quantity are identical either way; only the legal remittance differs.
How is deadweight loss from a tax calculated?
Half of the tax times the reduction in quantity: ½ × 5 × 6 = 15.
What does a negative tax do?
It is a subsidy. Buyers pay less, sellers receive more, quantity rises and the subsidy also creates a deadweight loss.

Features

  • Tax or subsidy
  • Burden shares
  • Revenue and deadweight loss
  • Runs in your browser

Related resources

Guides and videos from around the web—opens on YouTube or the publisher’s site.

  • Consumer and producer surplus

    Khan Academy

    Surplus areas drawn on economics hub charts.

    Watch on YouTube

  • Elasticity of demand

    Khan Academy

    Point and arc elasticity along a demand curve.

    Watch on YouTube

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