What is excess burden of a tax?

The excess burden of a tax, also known as deadweight loss, refers to the economic inefficiency that occurs when the imposition of a tax distorts consumer and producer behavior, leading to a reduction in the quantity of goods traded below the optimal level. This results in lost economic welfare, as both consumers and producers are worse off than they would be in a tax-free scenario. The excess burden measures the cost of the tax beyond the revenue it generates for the government, reflecting the lost benefits to society due to decreased market activity.