Question

Some user fees such as excise taxes on alcohol and cigarettes are used to influence behavior. Is discouraging the use of these products an appropriate role for the government? Are excise taxes a useful tool for influencing behavior in these areas? Should excise taxes on these products be earmarked for specific purposes? If yes, what types of activity should they support? In your opinion, are excise taxes on alcohol and cigarettes too high? Too low? Explain your reasoning.

Answer 1

Commodities like cigarettes and alcohol are addictive goods, hence, high taxes will have impact in changing the habits of the person but not to a great. The other objective of high taxes is to generate revenue. These commodities being addictive goods, people will buy them no matter what the tax rates are. Hence, in this way, its beneficial in both ways for the government. hence, I feel it is appropriate on the part of government to put high excise taxes. Excise taxes are useful, but only till a certain level. The reason being, as discussed earlier, the goods are addictive in nature, hence, it is tough for its users to leave it. The taxes can be increased further, the reason being, it will lead to either more people reducing the use of it, or if they do not reduce it, government can generate more revenue from it. Hence, the government can increase the tax rates.