Close monitoring, profiling, and sin taxes

Cars get into accidents.  Adding cars to the system increases the number of accidents.  The paper discussed here argues that adding a car in a high traffic state adds about $2,500 worth of additional costs, almost $7 dollars a day!  Here in Boston, a bus/subway transit pass costs a bit less than $2/day.  My somewhat dated estimate of the cost of car ownership was  $13/day, of which $1.25 was insurance.  Of course that $7 is at the margin and the insurance isn’t.

The authors suggest using  Pigouvian taxes as a way to reveal the true costs of their $7/day externality.  Sin tax is the common name for Pigovian taxes, i.e. taxes that are designed to bring market forces to bear on behaviors that are high cost in the big picture but  appear to be costless as they are being engaged in.  The authors suggest a gas tax or a change in how insurance is priced.  Per-mile charging would be preferable to per-year charging.

There is a trick some groups use to get people to show up on time.  They set out a jar and if you show up late for the meeting your required to quietly deposit a dollar in the jar.  That’s a  Pigouvian tax.  Otherwise the guy showing up late is inflicting a coordination cost on everybody in the room.  He’s getting a free lunch.  Later you can buy everybody a free lunch with the content of the jar.  This can backfire :).

Tax design is a fascinating puzzle.  Lots of dimensions!  One dimension that is often ignored is how easy it is to avoid the tax.  Back when I lived in NYC it was common to observe cars who’s license plates signaled that my neighbors had registered the car at their summer place in Vermont.  Here in Massachusetts it’s common to slip over the border into New Hampshire to buy larger items sales tax free.  A friend of ours reports that the current tight credit situation has move more of her income into the cash economy.

In practice it is easier to tax immovable things, like real estate.  Pigouvian taxes are hard to implement because behaviors are hard to tax compared to capital assents.  To first order it’s behaviors that cause externalities.  A consumable (beer, cigarettes, gas) can help with that.  Profiling can help, i.e. if we know John runs red lights, a smokes, a he’s a heavy drinker…

Just as we are doing more behavioral advertising, as technology lowers the cost of close monitoring and erodes our privacy we can do more of  behavioral  taxation.  Charge those guys that grab a free lunch by darting thru the intersection after the light’s changed.  The public will have mixed opinions about all this, but framed right they are likely to like the idea of taxing behaviors that have high externalities.  The congestion pricing schemes for cities are an example of this.  Are we at a tipping point for this stuff?

I’m surprised that the current crisis hasn’t triggered any (?) moves in this direction.  How hard is it?  For example, most states have managed to get most of their drivers to adopt their drive-by toll collection systems.  They could make that manditory and institute a mess-o-tolls.  I’m confident it wouldn’t be hard to repurpose that system to catch red light scoff laws.

Or states could use their drivers licenses to raise taxes on people who have a problem with alcohol.  They could even do that entirely on an entirely volunteer basis, following the model that Arizona uses where people can sign up to be barred from entering casinos.

I’m amazed that not a single state has  raised their gas taxes.  Many states have raised their sales tax.  Treating undifferentiated consumption as a greater sin than driving seems bizarre to me.  Sales taxes are also a very regressive tax.

I don’t know how this will work, but you can play the design your own  Pigouvian tax game here.  That uses moderate.google.com, which lets you post issues, collection ideas, etc.  I’ve posted some things that have short term pleasures for those who do them, but longer term costs for the rest of us.  Feel free to add others and possible  Pigouvian  taxes to compensate.

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