Question

What does the elasticity of the sins suggest about the effectiveness of the tax?

What does the elasticity of the sins suggest about the effectiveness of the tax?

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Answer #1

Sin taxes are a subset of consumption taxes; and are so called as they are levied on the products, such as alcohol and tobacco, that are the objects of widespread disapproval. Such taxes, while punishing, are not necessarily prohibitive because are levied on inelastic demand. Their demand is inelastic as the substance or behavior is highly habitual, pleasurable, or addictive, thus a small change in behavior will result to significant tax revenues however not eliminate the behavior

Sin taxes are argued to be unfair to the poor as these are regressive and thus placing the burden of taxation on poor people. Also the generate funds used for promoting the public goods are although created by their negative externalities and self-destructive behavior. Also the government becomes addicted to such ill-gotten gains

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