Deliberate Distortion
For more details on this topic, see Pigovian tax.Not all distortions are bad; Pigovian taxes create distortions that correct for externalities and therefore have a negative MCF.
Here, the fiscal distortion is deliberate, so as to compensate for externalities. "Sin taxes" are levied on products that incur additional costs to society, such as alcohol, tobacco and pollution. Ideally, these taxes raise the price to the exact level that the market would bear if the negative externalities were included in the price. Pigovian taxes are often preferable to outright prohibition, since prohibition incites trafficking, often resulting in crime and other social costs, but no revenue.
Read more about this topic: Excess Burden Of Taxation
Famous quotes containing the words deliberate and/or distortion:
“Several moralists have recommended it as an excellent method of becoming acquainted with our own hearts, and knowing our progress in virtue, to recollect our dreams in a morning, and examine them with the same rigour that we would our most serious and most deliberate actions.”
—David Hume (1711–1776)
“This is our fate: eight hundred years’ disaster,
crazily tangled like the Book of Kells:
the dream’s distortion and the land’s division,
the midnight raiders and the prison cells.”
—John Hewitt (b. 1907)