With regard to distortions one need to look at supply (and possibly demand) elasticities. It is possible that a small tax could produce a larger welfare loss than that of a large tax.
It might also be good to look at where the tax is initially falling—have not thought this out yet but is there a multiplier effect potential here?
Another view might also be that of costs—why is the cost of governance any more distortionary than the presence of costs anywhere else in the input markets? Maybe the approach here should be to look at potential real economic profits in the input cost prices (which would include cost of government) and make those incremental costs the distortionary element.
With regard to distortions one need to look at supply (and possibly demand) elasticities. It is possible that a small tax could produce a larger welfare loss than that of a large tax.
It might also be good to look at where the tax is initially falling—have not thought this out yet but is there a multiplier effect potential here?
Another view might also be that of costs—why is the cost of governance any more distortionary than the presence of costs anywhere else in the input markets? Maybe the approach here should be to look at potential real economic profits in the input cost prices (which would include cost of government) and make those incremental costs the distortionary element.