"Taxation has several significant excess burdens, including enforcement costs, compliance costs, and deadweight losses. Most estimates find that raising a dollar of tax revenue costs much more than a dollar. Unfortunately, commonly used public finance textbooks do not integrate these costs into discussions of public goods or cost-benefit analyses. Not including these costs means that the optimal levels of public goods will be overestimated."
Results and conclusion
The coercive extraction of tax dollars is a costly activity. Estimates of the total cost of raising a dollar from the U.S. personal income tax are substantial in magnitude. So one would think that public finance textbook discussions of cost-benefit analysis and the optimal provision of public goods would explicitly incorporate the welfare costs and compliance costs of taxation. But in our sample of the public finance textbooks used at elite institutions, none integrates the welfare costs of taxation into discussions of the optimal provision of public goods or cost- benefit analysis. When these costs are ignored, the purportedly optimal quantity of public goods is in fact too high. Fortunately, this bias could—quite easily—be eliminated from public finance textbooks.