Question

Suppose the Canadian government has decided to place an excise tax. What is the purpose of an excise tax?

1) To raise revenue for the government
2) To discourage the consumption of certain goods
3) To regulate the market
4) To promote economic growth

Answer 1

An excise tax is levied on specific goods, intended to raise revenue for the government and to discourage consumption of certain products, such as cigarettes and alcohol. The impact on revenue varies depending on how much the tax affects product consumption.

Step-by-step explanation:

An excise tax is a tax placed on the sale of specific goods, and it serves multiple purposes. Primarily, excise taxes aim to raise revenue for the government and may also function to discourage the consumption of demerit goods like cigarettes and alcohol. Examples of goods that commonly carry an excise tax include gasoline, cigarettes, beer, and liquor. While these taxes raise funds, the extent to which they discourage consumption can vary; for cigarettes, if a tax significantly reduces consumption, it may not raise substantial revenue. Conversely, if the tax does not majorly deter smokers, it could indeed produce a significant amount of tax income for the government.