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Negative Externalities

I’m probably past my Ezra-quota for the day, but this post on taxing fizzy drink/ soft drink/ pop/ soda (trying to cater for my WHOLE audience there) was really interesting.

It raises questions about changing our tax system so that, rather than discouraging good behavious through taxation, such as through a payroll tax, perhaps we ought to gain a larger proportion of taxable income from putting higher taxes on behaviours we wish to discourage.  Or, more objectively, to tax in such a manner that it prices for negative externalities.

Take the fizzy drink example:  pop causes tooth decay.  It causes people to gain weight.  These are two costs that, in one way or another, our society has to pay.  So why not make the pop drinkers pay directly through a tax on pop.  It’s not discriminatory: it simply ensures the product reflects the ACTUAL costs.  In short, it is pricing for negative externalities.

I have traces of libertarian in me.  I believe behaviours that do not harm others should be legal, providing the cost to the individual accurately represents the cost to society.

The same goes for carbon tax.  At the moment, the price of fuel and electricity and, well, everything, really, doesn’t reflect its true cost to society.  As the world heats up, costs are going to be incurred.  How, exactly, are we going to pay for them?  I honestly believe that they should tax petrol and electricity production until it accurately represents the ultimate cost to society.  And perhaps that will change the market in such a way that greener options become more financially appealing.

Yes, things will get more expensive.  But, one way or another, these are costs that we are going to have to bare.

To my mind, our taxation structure should definitely change so that goods that are good for society (like fruits and vegetables) have a low cost, while good that are bad for the world, in terms of health, environment, or other costable negative externalities, should accurately reflect those costs.

One thought on “Negative Externalities

  1. Hi there Naysayer-Provocateur,

    This issue of taxing pop/soft-drink is a little more problematic than carbon taxes. Currently not sure of any Gov that provides free dental care. If Governments do not, how does the tax get redistributed to pay the dentist bills? In the case of carbon taxes, governments can use the money to fund green technology research etc so that’s less problematic.

    It will be interesting to see how long it is before smokers have to pay a greater Medicare levy for healthcare (Australian reference). This is factoring in the risk such people are taking and the probability that they will be a greater drain on the healthcare system. Already, income protection insurance factors in some lifestyle habits into its premiums.

    BTW, I agree that fossil fuels should be taxed, but perhaps not for entirely the same reasons. Fossil Fuels are a limited resource and we should be encouraging alternate energy research/use but making the former more expensive. I’m not so convinced by the climate change debate, but that said a prudent, better-to-be-safe-than-sorry approach would seem wise.

    Cheers,

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