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Thursday, September 30, 2010

Colorado Sugar Tax

If you bought a soda in the last few months you might have noticed that it cost a bit more than usual. The reason for this is that Colorado has removed the tax break on items with sugar in them.
As we know a government tax is supposed to correct a negative externality and prevent market failure. The sugar tax is not meant to correct or prevent anything and at 2.9% it’s not even enough to correct people’s behavior. This tax is meant to raise revenue for the Colorado state government.
The question is what will it do to the efficiency of the market. This tax is going to change the MSC curve so that it shifts right, away from the MPC curve which of course will cause the market to be less efficient.

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