Question

How can governments use tax to try and change people behavior?

Answer 1

The way governments use tax to try and change people behavior:

Governments change consumer behavior towards certain products by imposing tax. If tax rate on certain goods is increased the consumption on those goods decreases, i.e. individuals and consumers opt for close substitutes.

For example, if the tax on Liquor is increased consumption of liquor will reduce. The purpose of this is tax imposition can be to reduce alcohol consumption and avoid accidents and uncertainties arising due to alcohol. Similarly, higher excises on fuel will force consumers to use minimal usage of cars and other pollution driven vehicles.