In a recent post, Kevin Corcoran expresses doubts about the desirability of Pigouvian taxes. He does the following about taxes aimed at curbing the consumption of unhealthy foods:
One of my most recent explanations of this problem came from Scott Alexander. Alexander used an example of how, in theory, taxes and subsidies could be used to get people to eat healthier. But Alexander goes on to comment:
You probably think this is an argument that vouchers + taxes/subsidies are a good solution. Nah. I say that legally they are a great solution. In fact, they have failed spectacularly, because we are subsidizing healthy food and limiting healthy production.
After giving many examples of the types of subsidies and restrictions caused by the political process as it really exists, Alexander concludes that “Given our current government, it should not be allowed within one year to determine anyone’s diet. To speculate that maybe the people in charge of this program will be honest people who work for the benefit of the community, means that what has happened will not happen.”
I’m not convinced that consumption of unhealthy foods creates negative externalities–so I don’t disagree with Alexander on this issue. Unhealthy people collect more Medicare and less Social Security. How it all turns out is hard to say. I remember a study of people who smoke suggesting that it is almost a bath. So let’s put aside the question of food, and consider goods that create negative externalities, such as burning coal.
If we accept that some taxes will exist, it makes sense to raise tax revenue in the most efficient way possible. That means higher taxes on goods with negative externalities than goods with positive externalities. Unfortunately, the US government often does the opposite, heavily taxing work, savings and investment, but not the consumption of CO2-emitting goods.
Here in Orange County, the state recently adopted a congestion tax on the two left lanes of the “405”. I love this tax, and I choose to drive on those two lanes when I go to my libertarian social events in LA. Some may argue that this is not a tax, as you are free to use the 5 proper routes. Nonsense. That’s like saying the fuel tax isn’t a tax because you’re free to use a horse. Drivers in 2 lanes on the left must pay congestion tax; it is not an option. The lanes are separated even by those flexible plastic poles.
[As an aside, these tolled lanes do not substantially favor the rich. I’ve observed that the kind of cars that drive in the pay lanes are very similar to those that drive in the free lanes.]This example shows that not all Pigovian taxes fail. Other achievements include congestion charges in cities such as Singapore, London and Stockholm. New York City recently decided not to implement its proposed congestion charge, although the history of these policies shows that they are popular after they are enacted.
In a recent comment, John Murphy he said:
A pigouvian tax raises some income, but that is not its goal. The incremental value is relatively small (in theory, it is non-existent since all revenue must be used to offset the deadweight loss from the outside).
I disagree on two points:
1. I see Pigovian taxes as having two goals—increasing income and reducing externalities.
2. I do not agree that in theory the income should be used to correct the negative external situation. Governments may do this for political reasons, but it is not a good use of public funds. I don’t know of a theory that says this is a smart way to determine public spending.
Another point. There is a lot of criticism of the government’s performance. I share the cynicism, to a point. But many people reach the wrong conclusion with their criticism.
The phrase “getting to Denmark” in development economics refers to the idea of making your public sector as efficient and uncorrupt as possible. In Denmark, even major airports and fire departments have been privatized. Of course many countries are more corrupt than Denmark, which leads to some healthy skepticism about the role of government. I doubt that.
But cynicism can go too far, and turn to rationalization. If we start to believe that it is hopeless to reform the government, and that eventually we will all end up with something as dysfunctional as the government of Venezuela, then it is hard to see how we can make progress as a society. The important thing is to go through the transition with eyes open about the problem of public choice.
So in the past I have suggested that a party that is more anti-tax (probably the GOP) might offer support for a carbon tax, but only if it is combined with a reduction in other taxes. So the carbon tax could be paired with eliminating the requirement that 401k funds be withdrawn at age 73. That tax reform package will encourage more savings and investment, and improve the environment.
A cynic might say that such a beneficial tax reform is impossible in our highly segregated society. If it’s true, maybe we’ll end up like Venezuela. But I remember a time when this kind of bi-partisan reform was possible. In 1986, Democrats and Republicans agreed to reform the income tax system by combining the Republican goal (very low tax rates) with the Democratic goal (many fewer loopholes.)
If the critics are right about the inevitability of government corruption, there is no hope for the future. Increasing inefficiencies will increase over time. I understand that at the present time there is little or no hope for bipartisan reform. But I also believe that economists should continue to define the most effective way to manage the financial state, in the hope that at some point in the future the political climate will move back towards a more reasonable zeitgeist.
Source link