The sin tax on cigarettes serves as a good example of the value of correcting market prices.Smoking yields substantial costs for treating lung cancer and emphysema that are borne not just by the buyers but by taxpayers as well via medicare costs,if the market costs of cigarettes paid by the smoker does not reflect these external costs,cigarettes are too cheap,we produce and consume too many and the economy devotes excessive resources to treating these diseases.In addition we suffer more premature deaths.We corrected these by internalising those external costs with the cigarettes tax and the country now expends far fewer resources on tobacco products and the treatment of related diseases,and we have fewer premature deaths.What was the impact on GDP as a result of policy on cigarettes?It would depend on what was done with the funds but it will be negligible.Regardless the economy and the society are clearly better off as we devote less resources to treating these diseases,live longer and have better health.It works the same for fossils fuel,the health and climate costs resulting from their consumption does not reflect in the market prices business charge as a result fossils fuel prices are too low and we have too much carbon pollution.This result in negative health effect and damaging climate change.So we are spending far more on healthcare and recovering wildfires,floods,heatwaves,droughts,strongstorms,sealevel rise etc than we should.
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