Sin tax

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A sin tax is when the government taxes things that are considered to be bad for society.

For example, if the government increases taxes on alcohol and cigarettes, this will make them more expensive. In economics, if a normal good becomes more expensive, its consumption will drop.

Arthur Pigou was a famous economist who supported the sin tax.

Sin taxes also have problems:

  • If there is a large price difference between countries this will encourage smuggling, and may create a black market.
  • Sin taxes may provide a reliable income for the government. In such a case, some governments encourage "sinful" behavior to get more taxes.