Mason Gaffney wrote: > A better way, I now realize, is to treat excise and > most taxes as being shifted into land rents, i.e. > taken out of land rents. Properly understood, the conventional deadweight loss analysis does this. In a competitive industry, the "producer surplus" is actually land rent, since competitive labor has the same wage and competitive capital goods sell at the same price; the long-run upward sloping supply curve is caused by differences in locational productivity, giving rise to differential land rent. Since landowners do not produce land, it should really be called the "non-producer surplus" (so labeled in my paper on "Geo-Rent" http://www.econjournalwatch.org/pdf/FoldvaryIntellectualTyrannyApril2005.pdf) Furthermore, the portion of consumption funded from land rent is the consumer surplus that is also at the expense of rent. Hence, much of the social surplus that goes to taxes is at the expense of land rent. > So, I think that instead of Harberger's itty-bitty > triangles, to remove bad taxes would result in > QUANTUM LEAPS of land from lower to higher uses. Of course the size of the triangle depends on how you draw the supply and demand curves. One can put in a large tax wedge with elastic curves and have a relatively large triangle. The quantum leap effect is indeed also needed, where the supply curve is horizontal due to a global market that leaves a firm with little pricing power; a gross receipts tax leaves the economic profit negative, and the firm disappears. But that can be done within the DWL framework with a highly elastic demand curve, so that a slight increase in price reduces quantity to near zero. Fred Foldvary