Addressing the Sin Tax Paradox
All taxes are “bad” in the sense that they distort economic activity. This suggests that to maximize human happiness, a.k.a prosperity, governments should remain as small as possible and tax in the least distortionary way possible. As governments grow (rightly or not), the quest for the LBT or “Least Bad Tax” (a subset of Optimal Tax Theory) becomes all the more important. One putative LBT candidate, taxes on “sin” levied to ameliorate social problems like “excessive” consumption of X, promise more than it has delivered.
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