Explain how redistributing income creates a deadweight loss

What will be an ideal response?

When income is redistributed from a richer person to a poorer person, both parties are affected. The richer person, who loses income, will pay a higher tax on earned income. This higher tax decreases the opportunity cost of leisure time (time spent not working) so the person will take more leisure time and work less. For the poorer person who gains income, the income transferred (say, welfare payments) will be reduced when the person earns more income. As a result, the poorer person also has less incentive to work. Because both the richer person and the poorer person have less incentive to work when the government administers income redistribution, there is created a deadweight loss, that is, a decrease in efficiency to society.