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:
“One would think, that a deliberate and practical denial of its authority was the only offence never contemplated by government; else, why has it not assigned its definite, its suitable and proportionate, penalty?”
—Henry David Thoreau (1817–1862)
“A man’s memory is bound to be a distortion of his past in accordance with his present interests, and the most faithful autobiography is likely to mirror less what a man was than what he has become.”
—Fawn M. Brodie (1915–1981)