Excise taxes are selective taxes on the sale or use of specific goods and services, such as alcohol and petrol. Over time, governments have relied less on excise taxes, though, as of 2007, excise taxes still contribute 12 per cent of total government revenues in OECD countries. In addition to generating needed revenue, excise taxes can control externalities and impose tax burdens on those who benefit from government spending. Rather more controversially, they also can be used to discourage consumption of potentially harmful substances (such as tobacco and alcohol) that individuals might over-consume in the absence of taxation.
KeywordsExcise tax incidence Excise taxes Externalities Leisure Optimal taxation Pigouvian taxes Ramsey model
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