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Imagine we wanted to influence people to eat burritos instead of tacos. Tacos are currently very popular. The normal cost of a taco is $3 and the normal cost

Imagine we wanted to influence people to eat burritos instead of tacos. Tacos are currently very popular. The normal cost of a taco is $3 and the normal cost of a burrito is $4. Let's say I have $4. If we subsidise the burrito by $2, then the burrito will cost $2 and the taco will cost $3. I have $4 so I can buy either of them. They are about the same price (with the burrito being just a little cheaper). However since I'm used to buying tacos, there's a good chance that I won't switch. If I leave the burrito at $4 and tax the taco an extra $2, then the burrito will cost $4 and the taco will cost $5. I don't have $5 so I'm forced to buy a burrito. Of course the problem is that in the second scenario everything costs more and the government is pocketing the tax. So while it's arguably going to be more effective at switching people to burritos (because a subset of people will no longer be able to afford tacos), it's easy to market against: "The government is destroying the economy by putting tacos out of reach of the everyday person. Food will be 33% more expensive because of this tax that is designed to funnel money into government coffers. There are 2 million taco makers who will lose their jobs because of this terrible tax. Vote for us and we will return the choice back to consumers." A subsidy is easier to introduce.

slavik81 8y ago
That's valid as long as there are only two choices, but a more accurate analogy would be that we don't really care what people eat as long as they eat fewer tacos. You could subsidize burritos, but that's less effective for people who would have had enchiladas as their second choice. In fact, some portion of people who would have bought enchiladas anyways might end up getting burritos because they're now cheaper, and the government foots the bill for no good reason. Another factor to consider is that the subsidy must be paid for by somebody, so you end up needing to raise the money through taxes anyway. This means that ultimately you are raising net taxes on everything that's not subsidized. With all that being said, you're completely right that subsidies are an easier sell. They have an enormous advantage: you can seperate the spending / mechanism of action (which people love) from the taxes that pay for it (which people hate). Taxes on bad things inherently tie the two together, which makes the marketing harder. Additionally, the benefits of subsidies are concentrated while the costs are diffuse, which makes it easier to build a strong voting block in favour of subsidies.

slavik81 8y ago

That's valid as long as there are only two choices, but a more accurate analogy would be that we don't really care what people eat as long as they eat fewer tacos. You could subsidize burritos, but that's less effective for people who would have had enchiladas as their second choice. In fact, some portion of people who would have bought enchiladas anyways might end up getting burritos because they're now cheaper, and the government foots the bill for no good reason. Another factor to consider is that the subsidy must be paid for by somebody, so you end up needing to raise the money through taxes anyway. This means that ultimately you are raising net taxes on everything that's not subsidized. With all that being said, you're completely right that subsidies are an easier sell. They have an enormous advantage: you can seperate the spending / mechanism of action (which people love) from the taxes that pay for it (which people hate). Taxes on bad things inherently tie the two together, which makes the marketing harder. Additionally, the benefits of subsidies are concentrated while the costs are diffuse, which makes it easier to build a strong voting block in favour of subsidies.