In addition to raising money, the government imposes excise taxes to:

In addition to raising money, the government imposes excise taxes to:

a. protect manufacturers of specific products.

b. encourage the use of specific products.

c. discourage the use of specific products.

d. protect consumers from specific products.

Answer: c. discourage the use of specific products.

In addition to serving as sources of revenue, excise taxes find their most common use in their application by the government as measures aimed at reducing the consumption of particular goods. The method is sometimes referred to as Pigouvian taxation considering that it is applied to eliminate negative externalities linked to particular products. Through taxes, governments want to limit the usage of specific products and bear-related negative consequences by raising their prices. These are services like taxes on cigarettes and alcohol as well as on petrol and diesel. These taxes are meant to raise the price of these commodities to reduce consumption especially in groups of consumers who are sensitive to the price of these products and in the process encourage healthier and more environmentally friendly products. Also, the money received from these taxes may be ring-fenced for other similar measures regarding the deleterious effects of the products under the tax in areas of public health or the environment. It enables the governments to steer such consumption in the desired direction while at the same time compromising in areas of public health to economic interests without completely banning products from the market.