Taxing for well-being, not ill-being

Taxation is in the news – and a plug for my colleague Rachel Griffith’s recent RES lecture on the taxation of multinationals is in order given today’s headlines about Google. John Gapper was spot on in his discussion about this in the FT today (£), Alphabet and Apple Spell Global Tax War: “Multinationals, especially US corporations subject to America’s dysfunctional tax laws, stretched rules to the point where the result appals taxpayers.”

Important stuff. But even bigger news is the publication tomorrow of the [amazon_link id=”1907994505″ target=”_blank” ]latest[/amazon_link] in our Perspectives series, Bad Habits, Hard Choices: Using the Tax System to Make us Healthier by David Fell.

[amazon_image id=”1907994505″ link=”true” target=”_blank” size=”medium” ]Bad Habits, Hard Choices: Using the Tax System to Make Us Healthier (Perspectives)[/amazon_image]

It’s a highly persuasive argument that the government shouldn’t hesitate to reshape taxation to make good foods cheaper and bad foods dearer. I particularly like this endorsement from David Cadman, Visiting Professor at University College London and the University of Maryland: “The fact that I read, at one sitting, a book on VAT is a tribute to Fell’s ability as a writer.  I liked the book very much – original, informative and well argued.” Of course the recent discussion about a sugar tax is relevant, but David’s case is broader. It isn’t just corporation tax that’s dysfunctional. So is VAT, a large government distortion of market prices contributing to ill-being, not well-being.

3 thoughts on “Taxing for well-being, not ill-being

  1. I’d say there is no such thing as neutral taxation, so whatever choices the powers that be make will be distortive in one way or another.
    The present Belgian government is engaged in what it calls a major ‘tax shift’, in an attempt to address the competitive disadvantage Belgium suffers (compared to its neighbours): payroll and income taxes are reduced, but sales taxes are increased.
    Making such choices on economic grounds makes sense in principle, as it may increase (Pareto) efficiency, and increase economic activity while maintaining (or even increasing) tax revenue.

    But the question is whether a government (or anyone, for that matter) is able objectively to determine what are ‘good’ or ‘bad’ foods, or activities. Taxation of carbon, to internalize a significant externality is one thing, but it is not inherently clear what the externality is that ‘bad’ foods are responsible for.

    An economically efficient tax system, which minimizes deadweight losses is one thing, but a paternalistic tax system that discourages the consumption of foods that are considered bad is quite a different one. The fact that such taxes would tend to be regressive, as it is generally the poor who disproportionately consume these bad foods, does little to strengthen their case.

  2. Pingback: Bad habits, hard choices | The Enlightened Economist

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