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The Darwin Economy by Robert H. H. Frank

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ELEVEN

Taxing Harmful Activities

A TAX ON ANY ACTIVITY NOT ONLY generates revenue, it also discourages the activity. That simple observation constitutes welcome news indeed, for not only do we desperately need additional tax revenue right now, but our economy is also bedeviled by a host of harmful activities. Taxes levied on those activities would kill two birds with one stone, helping to bring government budgets into balance while discouraging activities that cause more harm than good.

Pigouvian Taxes

Before discussing specific examples, it will be useful to flesh out the economic logic behind the claim that the tax approach often leads to better results than attempts to regulate harmful activities directly. The basic argument was first made ...

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