Taxation and Negative Externalities: A Lesson in Economics

Taxation and Negative Externalities: A Lesson in Economics

Learning Objective

Understand how taxation can be used to prevent negative externalities in the economy, with examples from the UK government.

What do you already know about how taxation can address negative externalities?

Introduction to Negative Externalities

Negative externalities are the unintended negative consequences of economic activities on third parties, such as pollution from industrial production.

Impact of Negative Externalities

Negative externalities can lead to market failure, as the true cost of production is not reflected in prices, resulting in overproduction.

Role of Government Intervention

Governments can intervene to address negative externalities through policies such as taxation, regulation, and tradable permits.

Taxation as a Solution

Taxation can be used to internalize the external costs by increasing the price of goods and services that generate negative externalities.

Examples of UK Government Policies

The UK government has implemented taxes on activities such as carbon emissions and plastic bags to reduce negative externalities.

Effectiveness of Taxation

Evaluate the effectiveness of taxation in addressing negative externalities, considering factors such as elasticity of demand and government revenue.

Challenges and Limitations

Discuss the challenges and limitations of using taxation to address negative externalities, including potential regressive effects on low-income households.

Case Study: Sugar Tax

Examine the UK's sugar tax as a case study of using taxation to reduce negative externalities associated with sugary drink consumption.

Conclusion and Recap

Summarize the key concepts learned and encourage students to reflect on the role of taxation in addressing negative externalities.

Write down 3 things you learned in this lesson.

Have students enter three things they learned in this lesson. With this they can indicate their own learning efficiency of this lesson.

Write down 2 things you want to know more about.

Here, students enter two things they would like to know more about. This not only increases involvement, but also gives them more ownership.

Ask 1 question about something you haven't quite understood yet.

The students indicate here (in question form) with which part of the material they still have difficulty. For the teacher, this not only provides insight into the extent to which the students understand/master the material, but also a good starting point for the next lesson.