Excise taxes are levied on a specific commodity or activity in addition to a general consumption tax, and they account for a very tiny and volatile portion of total tax receipts. Excise taxes on things like cigarettes, alcohol, soda, gasoline, and gambling are typical examples.
Excise taxes can be used to mitigate externalities as “sin” taxes. An externality is a negative effect or result that is not accounted for in the price of anything. Governments might, for instance, impose an additional price on carbon to reduce pollution or impose a particular tax on cigarettes in an effort to lower consumption and the accompanying health care costs.
Excise taxes are also a form of user fee. The gas tax is a prime instance of this. The amount of petrol a driver buys typically reflects how much they contribute to traffic jams and road damage. Taxing this transaction effectively adds a cost to utilizing public roadways.
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