Friday, March 12, 2010

Economist's Notebook: Sin Taxes and Pigovian Taxes

From NPR, a blunder (HT: Greg Mankiw):

But economists frown on what they call "Pigovian taxes," which are designed not only to raise revenue but put to governments in the position of trying to influence how people shop or behave.

If there is one thing almost all economists believe in, it is Pigovian taxes.  The story was on "sin taxes" which are taxes directed at behaviors generally frowned upon by society and so they are easier to enact in a democracy, and the writer obviously confuses sin taxes with Pigovian taxes.  Some behaviors frequently the target of such taxes, like smoking, also have negative externalities associated with them: the damage smoking does to the person's health which often costs society in medical care, and the the damage one persons smoke does to others nearby.  Taxes that are equivalent to the dollar amount of those external costs are Pigovian and efficient.  But huge taxes on cigarettes that are designed to get people to stop smoking are more what we would call 'sin' taxes and these are not as popular among economists.


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