A Problem With Pigouvian Taxes

MyUK Telegraph column today is on the likely impact of the country ’s sugary drinks tax. The levy, as ever, is being justified on the basis it will internalize the “social costs” of obesity.There ’s a ton of obvious problems. Sugary drinks make up less than 2.5 percent of overall adult calorie consumption in the UK—a drop in the dietary ocean. For young kids, fruit juice is a bigger source of sugar. Obesity, of course, is not simply determined by sugar intake, or even diet either. And it ’s not even clear what the social costs of obesity are (above and beyond the private costs—such as lost productivity and worse health), though the UK’s socialized healthcare system complicates matters here.That all to one side, beneath the line comes a great comment from Tim Hammond highlighting a general under-appreciated problem of using Pigouvian taxes to deal with externalities:The basic premise of the tax is wrong – externalities should only be taxed if they cause external costs at all levels. Otherwise they should be taxed only at the levels when they start to be damaging. It is obvious (to all except the zealots) that drinking one can of Coke a year is not remotely harmful, either to me or to the NHS (eve n with the most dodgy claims). So why tax that?Unit taxes are a blunt instrument to deal with the actual social costs politicians purport to care about.Think of another example: alcohol taxes are designed in part to ameliorate the social costs associated with alcohol...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs