Question

If an excise tax reduces economic surplus why does the government impose the tax? rev: 05_10_2018 Multiple Choice The marginal benefits of programs funded by the tax is worth the marginal cost. The government needs the money to get out of debt. The opportunity cost of having the tax is higher. Tax revenue is scarce and the government needs to tax the right goods.

Answer 1

Answer: The marginal benefits of programs funded by the tax is worth the marginal cost.

Explanation:

Excise taxes are indirect taxes imposed by the Government on certain goods and services in the country such as alcohol and tobacco. They are indirect because they are not imposed on the customers directly but rather on sellers who then pass it along by including it in the price.

The government can impose such taxes even if it reduces economic surplus if they judge the marginal benefits of programs funded by the tax to be worth more than the marginal cost of the tax.

For instance, in Botswana the Government imposes an excise tax on alcohol. Even though this reduced the sale of alcohol somewhat, the taxes raised helped in the rehabilitation of people addicted to alcohol as well as other things so the Government kept it going.