4.1.8.4 What policies would help reduce negative consumption externalities?

Pigouvian tax

government-imposed taxes on goods/services that create negative externalities, and aim to discourage the consumption of these goods/services to reduce the external costs imposed service

decreases production of negative externalities

advantage of pigouvian tax

regressive tax, works better when combined with other policies, i.e. education/regulation

disadvantage of pigouvian tax

UK cigarrete tax

application for pigouvian tax

Singapore’s strict smoking law, limiting alcohol sales, age restrictions

Application for Legislation/Regulation

immediate and clear reductions in harmful consumption since it forces compliance

Advantages of legislation/regulation

costly to monitor and enforce, raises risks of black markets when legal access is restricted

Disadvantages of legislation/regulation

Australia’s anti-smoking campaign

Application for education

promotes voluntary behaviour change without restricting behaviour

Advantages of Education

takes long time to change behaviour, difficult to raise funding

Disadvantages of Education strategies

pigouvian tax, legislation/regulation, education

What policies would help reduce negative consumption externalities?