The Bagel Tax Distortion

Besides questions of fairness, the classic reason why economists are skeptical of taxes is that taxes distort behavior.

In some cases, taxes can distort behavior in ways that are considered socially beneficial. Energy taxes, for example, make driving more expensive, and so can potentially reduce carbon emissions. Taxes intended to correct for these kinds of negative externalities are known as Pigouvian taxes.

Other taxes, however, distort behavior in more harmful, or at least arbitrary, ways. Income taxes, for example, can discourage people from working because they reduce the potential reward obtained from working.

To read the rest of this story please go to: The New York Times