Denmark just became the first country in the world to have a fat food tax. That means butter, milk, pizza, any food with more than 2.3% saturated fat content is more expensive. To be precise, for every 2.2 pounds (one kilogram), the tax is $2.90 (16 kroner). Predictably, in response, demand soared for fatty foods just before the tax went into effect.
This was not a policy reverse. Denmark had already increased taxes on chocolate, other sweets, sugary drinks and alcohol while limiting trans fats.
And they are not even as overweight as we are. The obesity rate in Denmark is close to 10% while the ratio is closer to 1 in 3 for adults in the U.S.
Here, more on how Denmark is regulating what its citizens eat.
The Economic Lesson
If a society pays all or part of the health care expense for its citizens, should the opportunity cost be individual freedom?
An Economic Question: Some people say that sales taxes are unfair because they are regressive; those who earn less have more of a burden. Your opinion?
Pondering health care reform, I began to wonder whether sin taxes would become Pigovian taxes.
A sin tax focuses on the impact of a behavior on an individual. Levied on something that society believes is “bad” for a person, a sin tax typically targets habits like smoking or alcohol consumption. Its goals involve generating revenue and minimizing the behavior.
By contrast, a Pigovian tax focuses on the impact of a behavior on society. Air pollution, for example, can harm the people who live near a noxious factory. If untaxed, the factory continues producing while society suffers. However, if the factory has to pay when it pollutes, production becomes more expensive. As a result, the supply of the item decreases and society is compensated.
Have societies with universal health care coverage transformed sin taxes (which relate to the individual) into Pigovian taxes (which impact society)?
The Economic Lesson
First defined by Arthur Pigou (British economist, 1877-1959), a Pigovian tax increases the cost of an activity involving two parties that has a negative impact on a third, unrelated group. Also called a negative externality, the harm experienced by the third party reflects a failure of the market to price the activity accurately because the market did not account for its cost (harm). When a tax or a fee is imposed, the cost of production increases. Consequently, the item’s supply curve shifts leftward.