Monday, February 18, 2013

Tax Levying

Taxes levied by the government should not discourage work in any way and there should be little distortion as tax should be distributed fairly. Since the 1986 tax reform, there have been more than 1,500 changes to the tax code (Mankiw, 2009). It has been generally agreed that equity and efficiency are the two most important goals that drive the tax system. In the past, the major revenue for construction of highways and bridges came from gasoline taxes but because of inflation and enhanced fuel efficiency, there has been a drop in the effectiveness of the gas tax (Vincent, 2007). Such problems have led to states to finding unconventional funding for highway construction. In the states of California and Virginia, city planners and government officials foresee public-private partnerships as the best way to finance highway construction. This is done to advance efficiency and equity since public-private partnership in highway construction rests on two ideals: (1) that tapping private equity will increase the needed capital in the private sector and that (2) there is the belief that the private sector is more steadfast and competent than its public counterpart.

Economists have often referred to alcohol and tobacco taxes as Pigovian taxes, named after Arthur Pigou (1877-1959), because of the negative effects the two have on the human health or society at large. Corrective taxes are usually imposed by the government to discourage society from consuming alcohol and cigarettes to socially optimum level. Other than alcohol and cigarettes, corrective taxes may also apply to soda and to other activities such as vehicle exhaust emissions that are deemed to cause pollution. Usually, the government will tax activities that have negative externalities and subsidize activities showing signs of positive externalities. The Environmental Protection Agency (EPA) is responsible for overseeing activities that cause harm to the environment. Governments impose corrective taxes on gasoline tax because of the need to reduce congestion, accidents, and environmental pollution.

Property owners pay property taxes at a given time frame or a given period every year. They fall under the corrective tax category. Since vehicle owners operate machinery that causes damage to the highways, imposing corrective taxes to repair or construct highways will be to their advantage. Education, social welfare, and highways received the biggest share of spending by local governments for the year 2005 (Mankiw, 2009). A tax benefit is like installing an energy efficient system in your home which in turn reduces energy consumption for a limited period. A tax benefit could be distortionary and have unintended consequences. An example of a distortionary tax is biodiesel which costs more to produce than the regular petroleum diesel. Modifications could be made to tax collection system and amount if they deemed beneficial to society.


Mankiw, N.G. (2009). Principles of Macroeconomics (5h ed.). Mason, OH: South-Western, Cengage Learning.
Vincent, K. (2007). Public private partnerships in highway infrastructure. Conference Papers-Western Political Science Association. Retrieved from 

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